What is a Purchase Order (PO)? Definition and Format

Heard about PO? It is an important document used between a buyer and the seller. Let us know about it today.

What is PO?

purchase order Also called the purchase order, a PO is a document generated by a buyer which allows a transaction of the purchase. When the same is accepted by the seller, it becomes a valid contract that binds both the parties. Hence, a purchase order is a legally binding paper between a supplier and a buyer. It carries detail of the items that the buyer has agreed to buy at a specific price. It also consists of the delivery date and other terms of payment for the buyer.

A purchase order includes the descriptions of the order, the quantity of the order, the price on which the order is settled, any discount if offered, the details of the payment terms, the date of the performance or the shipment, any other related terms and conditions, etc. It’s the definition or meaning of Purchase Order.

These days, a PO is mainly a computer-generated document that has improved the purchasing process. It helps manage a better inventory and payment tracking.

How Does a Purchase Order work?

The purchase order is made by the buyer using the services of the purchase department. The order is made using the electronic software systems. Using the electronic system, it ensures a better tracking. The PO comes along with a PO number, shipping date, billing address, shipping address, and price.

As soon as the buyer submits the order, the purchase in-progress is created. The status is in-progress till the ordered items are finally delivered by the buyer. When you receive an order, it is scanned into the stock, and matched to a valid purchase order. Then the purchase order is labeled as processed which also means it needs payment. The PO is complete when the buyer sends the payment. Ideally, the payment should contain the PO number or company account number.

Purchase Order Format:

There can be two types of formats of the PO.

  • Electronic purchase orders: It is an electronic form of the PO which is not a paper-based document. This PO format is transmitted electronically over the Internet. If you buy an online product, you will get an electronic PO. The same is also called as E-Procurement, E-Purchasing, and E-Purchase Requisition.
  • Non-electronic purchase orders: As the name suggests, this is a paper-based record of the purchase. It is a hard copy of a document.

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