The purchase order is the company’s approval to purchase products from a supplier, and it also precedes the supplier’s invoice and contains the names of the goods, their required quantities, unit price and all other purchase terms. By the company, after confirming the purchase order and receiving the purchases from the supplier, it can be converted directly into a purchase invoice, and in this article, we will talk about purchase orders and why they are important for small and medium businesses.
What are purchase orders?
A purchase order is a document that is an agreement with a supplier for the purchase of goods or services, and this document also helps to track product receipts that have been posted against the purchase order and, later, to calculate the invoices that the supplier prepares against the order.
Reasons why Purchase Orders are important
The purchase order is an essential process when conducting large, two-way transactions, and it helps in clearing business expenses,
This is essential when sticking to budgeting, generating inventory expense reports, and avoiding supply chain errors. Below we’ll show you why purchase orders are important:
1. Understand the company’s financial condition and prevent inconsistencies
Where purchase orders help provide clear information for auditors to consider historical data of transactions.
When a company is clear in issuing, processing and recording purchase orders, this prevents inconsistencies in financial information and allows auditors to clearly understand the company’s financial condition.
2. Easily track expenses
The company’s expenses can be clearly tracked through the use of purchase orders, it not only helps the company know how much it is spending, but also shows the details of what is being purchased.
This gives companies key information about ordering data to improve this process in the future, a simple look at past purchase orders and sales statistics for the company can show.
3. Billing accuracy
An invoice is basically the opposite of a purchase order, this is a document issued by the supplier to the buyer to request payment. get to know digital payments
However, it is still necessary to use the purchase order with invoices, as it provides more clarity and accountability during the transaction process for both parties.
4. Smooth execution of orders
When a company’s finance and inventory departments have access to purchase orders, it creates a seamless and transparent process for restocking and order fulfillment. Via fulfillment center
5. Providing legal protection
Purchase orders provide legal protection for both parties. If the supplier of goods or services does not fulfill the agreements stipulated in the purchase order, such as price – quantity – delivery date… This document can be used as evidence of breach of contract.
How purchase orders (POs) are different from invoices
Many people confuse the purchase order and the invoice, but in fact there are clear differences between each, so we find that:
A purchase order is a document passed from a buyer to a seller that specifies the quantity, quality, number of different products needed by the party and the expected rates.
It is a legal defense for the seller if the buyer refuses to accept the goods and services once the seller has produced them and the buyer refuses to pay for them.
An invoice is a document that is passed on from the seller to the buyer and indicates that the seller wishes to receive payment for goods or services that he previously provided.
The buyer also needs to pay when the invoice is presented, and the invoice is usually sent with the goods or services supplied but the seller can issue it when payment is due and the buyer is obligated to pay when it is presented to him.
The following is briefly the main differences between purchase order and invoice:
- Invoice is a document from seller to buyer, while purchase requisition is a document from buyer to seller.
- Invoice is a payment reminder and the buyer needs to pay for the goods and services he has already acquired,
- While a purchase order is an offer document from the buyer to the seller in which he specifies the quantity and quality of materials required along with prices.
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All large businesses use a purchase order
All large companies use purchase orders primarily in their business, which helps them avoid the risk of wasting time and money,
As many parties may order goods and services informally, so purchase orders protect the company from any potential risks.
It also helps purchase orders in improving the company’s profitability as well as enhancing its future vision as well,
Especially since all companies realize that the greater their size and growth, the greater their need to track their financial operations, especially purchases.
Also, in large companies, purchase orders play a vital role in managing the company’s spending, thus improving purchasing processes, as well as assisting the company in receiving and accounts payable.