Purchase Order – Steps Involved and Benefits

by Helena Williams
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Let’s face the fact. Greater the financial control, more the number of ways procurement consultants will benefit from it. And purchase order is one such factor that potentially keeps cost in control. So, getting the purchase order steps done correctly and strategically following the procedures can benefit every business in incredible ways. Now, this applies to organizations of all sizes. Be it a small or a big business, purchase order plays a vital part in controlling the purchases of a business. All you need is a professional purchase order officer who can effectively handle the purchases by building a robust relationship between supplier and buyer and provide an audit trial of all the required purchases.

So, let’s cover the topic in an approachable way. At first, you will get a brief idea about what a purchase order is, slowly you will get down to the steps involved in the purchase process, and finally, you will learn about its benefits.

What is a purchase order?

A purchase order is a formal document that confirms an order. This particular document is created by a buying subcontractor and its purpose is to authorize the purchase transaction of services from the vendor.

The purchase order usually consists of the company’s name, the number of goods and their description, date of purchasing the service, price, payment information, purchase order number, invoice address, and mailing address.

Steps involved in a purchase order process

The purchase order process forms a portion of the wider procurement process that effectively specifies and confirms the actual requirement of products and services before the purchase is embarked. Besides, it also focuses on thoroughly monitoring the results and processing the payment transactions.

The entire purchase order process depends on five simple steps. These are:

  1. Creating the purchase requisition – The very first step involved in a purchase order process is the creation of a purchase requisition by a requisitioner. The requisitioner is responsible for creating a document to obtain the permission required to go ahead with the purchase of goods. The requisitioner may add or amend the document as per the requirement before receiving the approval, or even after canceling it.
  2. Purchase order issuing – Once the purchase order is approved, the requisitioner can successfully create the purchase order after confirming and agreeing to the terms and conditions, delivery, and prices related to the purchasing product. Companies usually prefer using a Request for Proposal for large purchases and offer it to their suppliers. Both buying subcontractor and supplier sign off some level of financial authority for the purchase before issuing the purchase order electrically to the selected supplier.
  3. Approval of purchase order by the supplier – After the electrically issued purchase order document is sent to the supplier, he will thoroughly go through the document and check if there is any unacceptable or incorrect detail. If found, the supplier may request amendments. And if necessary, the supplier will approve the purchase order via an e-procurement platform.
  4. Recording and filing of the purchase order by the purchaser – This step is all about awaiting the purchase order delivery. Now it is time to re-check the entire process and organizational buyers will do it to see if the process successfully aligns with the acceptable standards. A Goods Received Note is created on which the Goods are signed. And the signing-off part is completed only after the products have been successfully supplied.
  5. Approval and payment – After receiving the invoice and matching it with the purchase order, it is paid according to the agreed payment terms.

Benefits of a purchase order document

Purchase order document serves the following purposes for an organization:

  • Purchase order helps in setting a clear expectation and clarify the exact requirements to the vendors. This makes sure the buyer gets off on the correct foot and also ensures that parties can use the order as a formal check-in case the expectations are not met.
  • The purchase order document helps in managing the orders. Individuals who effectively manage the inventory are typically in finance, operations, or procurement. A purchase order document makes their work easier by providing a formal document of deliveries and orders more effectively.
  • Organizations can effectively manage the orders with purchase order documents that help them with the budgeting part as well. After creating the purchase order, purchasers can effectively factor spends into organizational budgets, and they can do this as immediately as possible. This makes owners have a clear record of the actual money spent and where it is going.
  • Purchase order documents are legally binding documents. These documents are accepted by vendors as proof of the purchases made. This is an official document and an enforceable contract between the procurement consultants and the supplier.

So, now you know the actual meaning of purchase order, the steps involved in getting it down, and the ways organizations can benefit from it.

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1 comment

Hari March 21, 2021 - 4:36 am

Nice document

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