Different Types of Purchase Orders
A purchase order (PO) is an official document generated by a buyer of goods/services as an offer for the seller. It becomes a “legal document of contract” once the seller accepts the purchase order. There are mainly 4 different types of purchase orders;
- Standard PO
- Contract PO
- Blanket PO
- Planned PO
Standard Purchase Order
It is the most basic and widely used among different types of purchase orders, it is created when a buyer is sure about the order details such as the item, price, delivery schedule, payment terms etc.
Example – Unreal corp. decides to buy 50,000 x 9W led bulbs from GE for a unit price of 10 each to be delivered within 60 days of the order date. In such case, Unreal corp. will raise a standard PO and send it to GE for acceptance.
Contract Purchase Order
It is created for a set period of time (often for a year) the item, pricing, quantity etc. can’t be anticipated precisely. In this case, a contract purchase order can be raised by the buyer, which upon acceptance becomes a legal contract.
During the contract period, the buyer can raise a standard PO with specifications of requirements and request for goods.
Example – Unreal Corp. analyzes and concludes that it often requires led bulbs of different wattage around different times of the year, however, the requirement is irregular and can’t be anticipated. In this case Unreal corp. can raise a contract purchase order.
Blanket Purchase Order
It is used in cases where the item is known, but the quantity and required delivery schedules are unknown. There can be numerous delivery dates against a blanket PO, they are often used in case of large quantities with exceptional discounts.
Example – Unreal corp. decides to buy 5,00,000 x 9W led bulbs each year but they are not sure about the delivery schedule & quantity of each release. In such a situation Unreal corp. will raise a blanket purchase order.
Planned Purchase Order
It is used for a planned purchase anticipated for long-term where the delivery schedule is not known in advance. The dates of delivery can only be anticipated therefore only tentative dates are provided to the seller. Item, pricing and quantity are however known in advance.
Example – Unreal Corp. has evaluated that it will have a long-term need for the next 5 years to buy 25,000 x 11W led bulbs each year. Instead of raising a standard PO each time Unreal Corp. can create a planned purchase order.
The reference table is shown below with different types of purchase orders and their respective scenarios
For Accounting Practice