Purchase Orders Explained

The purchase order is a commonplace document in the business world, yet it can be a tricky process to master if you haven’t created one before. If you’re interested in using purchase orders, we’ve put together the key info you need to know.

Purchase orders are legally binding

One of the most useful features of a purchase order (PO) is that it’s a legally binding document for both parties. Whether you’re receiving or sending the PO, its mutual acceptance makes it a contract between the buyer and seller.

If you’re the supplier, the PO informs your client of which services are being supplied and the amount they need to pay. The recipient of the PO needs to check the amount stated and either confirm that it’s good to go or dispute it. If the amount is changed as a result, you must send a new PO, which then requires confirmation from the customer.

By using purchase orders, you’re ensuring that everyone is on the same page and the client won’t be able to feign ignorance when it’s time to pay. This is why you need to retain a copy of the PO and any email correspondence, as you may need to refer to it at a later date.

What should I include on a purchase order?

In order for your purchase order to be legitimate and straightforward, it needs to include the following information:

• Your business name and contact details
• Who business and individual the PO is being issued to
• The date the PO was issued
• The type and quantity of goods or services being supplied
• The agreed price, including delivery costs if applicable
• Your payment terms (such as when and how to pay)
• Any other terms and conditions you want to include
• The PO should also have a unique PO number, which can then be quoted on the invoice and any correspondence related to the sale

The benefits of purchase orders

As well as providing evidence of any products or services being requested by the customer, a PO comes with a range of additional advantages:

Prevents mistakes: When both parties have agreed on a PO, the likelihood of confusion and disputes is significantly reduced.

Better budgeting: The buyer can manage their budget more easily when they have purchase orders to log into their accountancy systems.

Clearer monthly sales: As the supplier, you can log your sales more easily and forecast with greater accuracy.

Easy reconciliation: If you regularly sell to the same customer, purchase orders clearly separate different jobs and orders. This removes the risk of discrepancies at both ends, such as duplicate invoices or missing information.

We can help with purchase orders

Need support with POs or any other form of accounting documentation? Get in touch with our Yorkshire office on 01482 235575, our London office on 0207 885 0605, or fill in our contact form.