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. Companies use purchase orders for several reasons. Purchase orders allow buyers to communicate their intentions clearly and explicitly to sellers.

Why Purchase Orders are Important for your Business?

There are many small and medium sized businesses that don’t use purchase orders because they feel like the paperwork is just a roadblock or unnecessary step in the process because they have steady working relationships with vendors. When small businesses are still in the startup phase, business owners tend to have an organic purchasing process that’s simple and straightforward. But, as the company grows, and more hands are involved from start to finish, the process changes as the relationships with vendors grow and evolve with time. At a certain point in company growth, purchasing demands become more complex, urgent, or specific, meaning communication can become difficult and leave plenty of room for error if purchase orders are not used, or lack a certain level of detail.

Purchase Order Basics

You can create purchase order using online purchase order software (aka cloud purchase order tool). To create a purchase order, you will need following information:

  • Issue date
  • Products needed and the quantity of each product
  • Product details including SKU numbers, model numbers and brand names
  • Price of each product per unit
  • Delivery date PO number
  • Business information including the shipping and billing address, company name and contact information
  • Terms for payment, such as “paid upon delivery” or specific payment date options

For detail on creating purchase order.

Types of Purchase Orders

There are four primary types of purchase orders used by businesses. The selection of which type of purchase order should be used is determined by how many details are known about the order prior to the placement of that order, and subsequent purchases. The four types of purchase orders are:

  • Standard Purchase Orders (PO): When you are making a one-time purchase, this is the way to go. It’s the most common type of purchase order, and the simplest.
  • Planned Purchase Orders (PPO): Partnering with a single supplier as your sole source of specific goods or services requires a planned purchase order. For example, a retail business may intend to regularly purchase 120 items of a certain type each year to sell. The retail business may establish a PPO with a supplier, including a tentative schedule to order 10 items each month throughout the year.
  • Blanket Purchase Orders (BPO) (Also referred to as a “Standing Order”): If you find yourself with a need to purchase a specific good or service, but you’re not sure about your precise time frame or quantities required, use a blanket PO. Also known as standing purchase orders, blanket orders have a limited shelf life and cover a specific period of time. For examples, businesses that require components like printing paper and ink in order to serve an undetermined number of clients with varying volume requirements would benefit from establishing a BPO with their primary suppliers.
  • Contract Purchase Orders (CPO): A contract purchase order (CPO) is somewhat similar to both the PPO and BPO, but for this type of purchase order, even the list of items required for purchase are omitted from the arrangement. Rather than a binding legal agreement for a specific purchase, contract purchase orders create a high-level, long-term agreement.