HomeProductsProcurementThe Importance of Purchase Order (PO) in Business

The Importance of Purchase Order (PO) in Business

In procurement, buyers need to create a document for it. People know this document as 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. This article will discuss the importance of purchase orders in business.

What Is a Purchase Order (PO)?

PO
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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.

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

Purchase Order (PO) Aspects

PO
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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 company or person name, buyer address, and buyer contact. Complete buyer identity is important in the purchase order document to avoid the error 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 avoid the buyer in late payment. 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 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

PO
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As an important component in procurement transactions, purchase order certainly has several functions. The purchase order can be used as a 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 transactions such as wrong specifications and wrong amount of goods quantity. Therefore, buyers can make detailed purchase orders to avoid errors in transactions. Purchase order giving convenience for the buyer in procurement with affordable prices. Also, the purchase order can prevent the buyer from fraud.

Things to Consider in Making Purchase Order (PO)

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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 in order 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?

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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 to the document maker, The buyer makes the purchase order to request some goods to 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 received the invoice. The differences between purchase order 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

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There are another terms of PO in business besides purchase order. 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 preventing fraud. Store partners can claim their sales profit online in 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

Purchase order or PO is an essential document in procurement. With 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.

Making purchase orders for procurement transactions can be easy by using the procurement system from HashMicro. Top features support this procurement system. Contact us for the best offer and free demo.

Related articles:

Procurement System: Feature and Benefit

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