A Purchase Order (PO) is a commercial document issued by a buyer to a seller indicating types, quantities, and agreed prices for products or services. Purchase orders can be an essential part of enterprise resource planning (ERP) system orders. Purchase orders allow buyers to communicate their intentions clearly and explicitly to sellers.
Purchase Order Best Practices for Small and Medium-Sized Businesses
Ensuring you have robust purchase order terms and conditions covering all relevant scenarios, including details like when you can cancel and return a purchase order, will ensure clear boundaries to maintain good relationships with your key suppliers.
Follow these purchase order best practices when you create a process for purchase orders for your small and medium-sized business.
Adopt an electronic purchase order system
Consider adopting an online purchase order system. An online PO System will save you the hassle of using manual Word and Excel template to create POs and make it much easier to track the goods receipt and payment to the vendors. Moreover, not only do these electronic systems prevent you from misplacing or damaging paperwork, but they also provide an environmentally friendly alternative to printing all the documents involved in a purchasing cycle.
Set a budget for your expense categories
According to your yearly budget, you may have allocated a set amount for each business expense category such as office equipment to product supplies and equipment to outside services and more. As such, establishing clear expense categories can be helpful for better tracking your cash flow. It may also help to set pricing thresholds so that purchase orders remain within the bounds of your business’s budget, e.g., capping equipment purchases at a certain figure.
Use a purchase approval system
Enforcing a purchase order approval workflow can help prevent purchases from getting out of hand, especially in the event duplicate orders are placed for the same product. To avoid scenarios of this nature, appoint a purchase manager to approve orders before they’re submitted to your vendor. Establishing an approval workflow helps to control organization costs and prevent financial mismanagement.
Create a vendor catalog
Consider creating a spreadsheet directory of all the different suppliers your business orders from, with all the information necessary to complete an order, e.g., address, contact number, and payment terms. Having this database integrated with your inventory management can streamline the purchasing process by acting as a reference and guide for the best supplier to buy from. It can even help in deciding which vendor to move forward within the event you want to establish a long-term contract.
Write up a PO guide for employees
Having a PO guide on hand establishes ground rules and expectations for your team when making purchasing decisions on behalf of your company. For instance, should employees always select the lowest-priced goods to cut back on business expenses? Or should they opt for more expensive goods to account for quality? Perhaps there’s a particular rule of thumb you want to enforce for a more consistent purchasing strategy among your team members. In any case, a guide serves as a useful reference to not only outline procedures for more specific purchasing scenarios but to also train new employees in choosing and negotiating with vendors.