The Importance of Purchase Order (PO) in Business

In procurement, buyers need to create a document for it. People know this document is like a purchase order or PO. The purchase order is an essential component in doing a transaction. This document can avoid errors in transactions. Purchase orders play a role in providing legal protection for the involved parties in transactions.

The use of integrated ERP software can help you streamline your business processes and drive your company’s growth significantly. With, quotation and sales order management, can create different quotations for multiple leads. Also get multi price list, etc. This article will discuss the importance of purchase orders in business. 

What is a Purchase Order (PO)?

The purchase order or PO is a document containing a request in procurement that was made by the buyer and submitted to the seller. The purchase order also can be defined as an agreement to purchase goods between the buyer and the seller.

In other words, the purchase order is a form of commitment from both parties, the buyer in purchasing the goods and the seller in providing the requested goods. In transactions, purchase orders are essential documents to avoid errors in the procurement and delivery of goods.

The existence of PO can make it easier for your business to meet the demands of your products. Especially if your company also uses CRM sales Software, you can prepare products that match customer demands to prevent waste and accumulation of goods.

Also Read: Purchase Orders: All You Need to Know About Them

Purchase Order (PO) Aspects

There are several essential aspects in making the purchase order. These aspects can easily help the seller in providing the purchased goods. First, complete buyer identity. This identity consists of the company or person’s name, buyer address, and buyer contact.

Complete buyer identity is important in the purchase order document to avoid errors in delivering the goods. The second aspect is the purchase order date. The third aspect is the delivery time of goods by the seller. The fourth aspect is the payment due date. The buyer needs to pay attention to the payment due date.

This thing will prevent the buyer in late payments. For your information, the buyer will get a special price if they are making the payments directly. The fifth aspect is the buyer must provide the details of the goods information to the seller. Last but not least, the buyer should include the total transaction price in the purchase order.

Purchase Order (PO) Functions

As an important component in procurement transactions, purchase order certainly has several functions. The purchase order can be used as proof of transactions. PO as an important component in procurement transactions certainly has several functions.

First, the purchase order can be used as proof of transaction from the seller to the buyer. In other words, this proof of transaction can be a commitment form from the seller in the procurement and buyers in doing the procurement transactions.

The purchase order can prevent the buyer from errors in transactions such as wrong specifications and wrong amount of goods quantity. Therefore, buyers can make detailed purchase orders to avoid errors in transactions. Purchase orders give convenience for the buyer in procurement with affordable prices.

Things to Consider in Making Purchase Order (PO)

In making a purchase order or PO, the buyer must pay attention to these things to avoid errors in procurement transactions. The buyer needs to include a detailed identity on the purchase order. In the purchase order, it is essential to have a precise order list to deliver the goods according to the buyer’s request.

The buyer should mention the delivery method and delivery schedule. If the buyer wants to send the goods to several places, the buyer should mention the information to the seller in the purchase order.

Regarding the payment method, the buyer must provide the payment method information. The buyer can use cash payment or bank transfer. Last but not least, the purchase order must consist of the purchase order number. This number plays an essential role for both parties when there are problems in procurement transactions.

What is the Difference between PO and Invoice?

Purchase orders and invoices are distinctly different, although both are essential components of a transaction. The purchase order is a confirmation of procurement by the buyer. Meanwhile, an invoice is a payment request by the seller.

Regarding the document maker, The buyer makes the purchase order to request some goods from the seller. In contrast, the seller makes an invoice to request the payment to the buyer.

Regarding the recipient of the document, the purchase order will be received by the seller. In comparison, the buyer will receive the invoice. The differences between purchase orders and invoices can be seen from the delivery time of documents.

The buyer sends the purchase order to the seller when requesting some goods. Unlike the purchase order, the seller will send an invoice to the buyer when the order has been completed.

Also read: The Difference Between Purchase Order and Invoice

Another Terms of PO Besides Purchase Order

There are other terms of PO in business besides purchase orders. The other terms are pay-out and pre-order. These are the explanations of pay-out and pre-order.

Pay-Out

Many people might not be familiar with pay-out terms. Pay-out is defined as a payment activity by the e-commerce or online platform to the store partner in their platform. The store partner is unable to receive their sales profit directly.

Their sales profit will go first to the e-commerce bank account due to prevent fraud. Store partners can claim their sales profit online on the platform. As a result, store partners will get their sales profit through a personal bank account if successfully claimed.

Pre-Order

Pre-order is a system that allows buyers to order goods and pay for them in advance even though the item is not yet available. This pre-order system will help the seller because it only produces goods with the appropriate amount. Pre-order systems have a payment mechanism like full payment and payment in terms.

Conclusion

A purchase order or PO is an essential document in procurement. With a purchase order, the buyer and the seller can prevent fraud. The buyer needs to pay attention to purchase order aspects to prevent errors in procurement.

HashMicro as a leading ERP Software vendor in Singapore provides solutions for your company to operate business automatically, especially CRM Sales Systems. This system will help you to make the purchase only for the requested product, so you can prevent buying unnecessary products and exceeding the budget.

Feel free to contact us to get the best offer and free demos.

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