Purchase order

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 the seller will provide to the buyer. Sending a PO to a supplier constitutes a legal offer to buy products or services. Acceptance of a PO by a seller usually forms a one-off contract between the buyer and seller, so no contract exists until the PO is accepted.^[1]

Rationale

There are several reasons why companies use POs.

They allow buyers to clearly and explicitly communicate their intentions to sellers, and to protect the seller in the event of a buyer's refusal to pay for goods or services. For example, say Alice works for Company A and orders some parts from Company B. There could be a problem if Alice was not actually authorized to issue this purchase order — perhaps due to a miscommunication, the employee believed to have the boss's permission to place the order. Once this error is discovered the order is canceled. Depending on the type of product being ordered, and at what stage the PO was canceled, Company B may incur manufacturing costs (labor, raw material, etc.) as well as shipping and packing costs. They might also lose the product order and invoice not be in agreement.

See also

• Sales order
• Blanket order
• Purchase requisition

References

1. ^ Dobler, Donald W; Burt, David N (1996). Purchasing and Supply Management, Text and Cases (Sixth Edition ed.). Singapore: McGraw-Hill. pp. 70. 

Further reading

• Purchase order description and template
• Sample purchase order