Purchases orders (or POs for short) are an essential part of any supply chain. In this article, we break down what a PO is, how it works, and answer other frequently asked questions.
A purchase order (PO) is a legally binding document created by a buyer and sent to a seller. It’s a list of what you want to buy that lays out product SKUs, quantities, payment terms, and delivery details.
It is both a form of insurance and a legal commitment by the buyer to the seller that they’ll purchase the goods or services for the agreed amount. Similarly, it’s a form of insurance for the buyer that the seller will invoice them for the agreed upon amount in any case where there might be a discrepancy.
Purchase orders are typically used by organizations purchasing in bulk. For example, if you run a warehouse, you may need to purchase several types of corrugated boxes in different quantities from your supplier. To buy them using a purchase order, the flow of events goes like this:
Purchase order details vary depending on your organization and the type of item being purchased, but it typically includes:
Purchase orders and invoices are often confused since they are both legally binding documents exchanged between buyers and sellers. However, they aren’t the same.
Purchase Orders are issued by buyers to place orders and created before delivery.
Invoices are issued by sellers and created after delivery.
Purchase orders and purchase requisitions are often confused, but they aren’t the same.
Purchase orders are legally binding documents created by a buyer and issued to a seller after receiving approval to place an order.
Purchase requisitions are internal documents created before receiving approval and placing an order.
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