Purchase order - What is a purchase order?
A purchase order is a document created by a buyer, indicating the items they wish to purchase from a seller. It's a contract that forms an agreement between a buyer and a seller, concerning the goods the buyer wishes to purchase.
Unlike an invoice, which is created by the seller and sent to the buyer, a purchase order originates with the buyer and is sent to the seller.
What does a purchase order contain?
In addition to information detailing the companies involved, and the date of the order, a purchase order will contain important details about the goods the buyer intends to purchase. These include:
The name of the product
Any additional terms for the sale, such as discounts, etc.
The purchase order is a request for the goods at the quantity and prices listed by the buyer.
What happens after a purchase order is issued?
Once a purchase order has been created and sent to a seller, the seller then decides whether to accept the contract.
By accepting the purchase order, the seller agrees to sell the listed products and quantities at the prices set forth by the buyer. The seller then issues an invoice to the buyer based on the purchase order.
For example, suppose Maria works as a self-employed plumber and needs to purchase new materials from a supplier. She will create a purchase order to present to the supplier from which she wishes to order materials.
The supplier agrees to the purchase order and sends the materials to Maria’s plumbing company along with an invoice. When Maria’s company receives the goods and the invoice, they compare them to the purchase order. If the documents and goods match, Maria’s company pays the invoice.
Why use purchase orders?
While they may seem like a complicated way to go about ordering materials from suppliers, purchase orders are used to add an extra level of fraud prevention and to secure materials at desired prices.