Making large, important purchase transactions without purchase orders is usually a bad idea. If your accounting solution doesn’t have that option, Shopify has an excellent purchase order template. These days, most companies use an electronic purchase order system, typically managed with accounting software. Purchase orders are standardized across the entire company and contain, at the very least, information about: the purchaser and vendor (names, addresses), the order itself (product description, technical specs, price, quantity), and payment terms (due date and form of payment, eg. Item description and technical information.Additional contact information, such as phone numbers and email addresses.The elements included in this example are: Your purchase order doesn’t have to look exactly like this. Here’s an example of a purchase order form The purchaser’s finance department then compares this invoice to the purchase order to make sure that the two documents agree with each other. The vendor delivers the order along with an invoice.

The purchaser sends payment for the agreed price (or does so at an agreed-upon later date, which is specified on the purchase order.) Once they approve the purchase order, it becomes legally binding. The purchase order is then sent to the vendor, who decides whether they can and want to fulfil the order. If the department approves the order, they fill out a purchase order detailing exactly what the purchase is. Some companies do this by issuing a purchase requisition form. Here’s a breakdown of a typical transaction involving a purchasing order from the perspective of a purchaser:įirst, the purchasing department at your company is notified by management that a purchase needs to be made. The steps involved in the purchase order process can be a bit complicated. With everything they need to know in one place, the purchasing process is straightforward-so there will be no back and forth and no miscommunication. If your vendor is used to receiving purchase orders, you’ll get your shipment faster if you send them one. Without purchase orders, prepare for a long, painful process of poring over invoices, receipts and emails with vendors. Why? Purchase orders remove a lot of stress from the auditing process by providing auditors with a conclusive audit trail and an easy way to cross-check invoices and packing slips. If you happen to get audited, you’ll thank your former self for creating purchase orders. From an accounting perspective, you can budget confidently knowing that you have a contractually-enforced purchase price. In the same way that invoice numbers help you manage invoices, by assigned a PO number to each purchase order, you can easily track the orders you’ve sent.įrom an operations standpoint, you can track orders more confidently knowing that your supplier is contractually bound to deliver them at a specific time and date. Purchase orders help you better account for all of the goods and services your company has ordered, keep tabs on how you’re paying for them, and track when they’re arriving. The document only becomes legally binding once the vendor “acknowledges” the purchase order by signing it.) 2. (Note: simply sending a purchase order to a vendor isn’t enough for it to take effect. Once a vendor receives and approves a purchase order, you’re both legally bound to your end of the deal. Purchase orders get around that ambiguity by bringing both parties together in a mutually-binding contract and serving as an on-the-record legal document. Without a paper trail, it can sometimes be difficult to definitively prove what went wrong in a purchase. If you and your vendor disagree and you don’t have a purchase order-which is a legally binding contract-you can end up in a legally tricky position. Let’s say your startup ordered ten ergonomic chairs from a vendor, paid for them, but then on delivery day only nine chairs arrived at your office.

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