A Purchase Order (abbreviated PO) is a commercial document issued by a buyer to a seller, indicating the type, quantities and agreed prices for products or services that 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 once-off contract between the buyer and seller so no contract exists until the PO is accepted.^[1] POs usually also specify additional conditions such as terms of payment, Incoterms for liability and freight responsibility, and required delivery date. This article or section does not adequately cite its references or sources. ... A buyer, sometimes called a merchandiser, is a person who purchases finished goods, typically for resale, for a firm, government, or organization. ... Sales, or the activity of selling, forms an integral part of commercial activity. ... A contract is a legally binding exchange of promises or agreement between parties that the law will enforce. ... A payment is the act of transfering wealth into another person or company. ... Incoterms or international commerce terms is a series of international sales terms that are widely used throughout the world, divides transaction costs and responsibilities between buyer and seller, reflects state of the art transportation practices and closely corresponds to the U.N. Convention on Contracts for the International Sale of...

Structure

A purchase order usually contains: PO number, shipping date, billing address, shipping address, terms of payment (usually in the form of NET 30, NET 45 and NET 60 depending on requirements set by Seller), and a list of services/products with quantities and prices. When accepted by the seller it forms an agreement between buyer and seller.

Rationale

There are several reasons why companies use POs. They allow buyers to clearly communicate their intentions to sellers, and they protect sellers in the event that a buyer refuses to pay for something which was sent. For example, say that Person A works for Company A and orders some parts from Person B at Company B. There could be a problem if Person A didn’t actually have authority to authorize this order--maybe they thought they had the boss’s permission but there was a miscommunication. So, the order gets returned and Company B loses money. Depending on the situation, Company B might only lose shipping and packing costs, but they might also lose significant manufacturing labor and materials costs and other expenses. They might lose the product entirely (e.g. if it is perishable). This article is in need of attention; please see the talk page. ...

In order to prevent such problems, sellers often request purchase orders from buyers. This document represents the buyer’s intent to purchase specific quantities of product at specified prices. In the event of non-payment, the seller can use the PO as a legal document in a court of law to demonstrate the buyer’s intent and to facilitate collection efforts. Companies usually request POs when doing business with other companies for orders of significant size, as the PO reduces the risks involved.

In the course of the accounts payable process, purchase orders are matched with invoices and packing slips before the invoices are paid. Accounts payable is one of a series of accounting transactions covering payments to suppliers owed money for goods and services. ... An invoice is a commercial document issued by a seller to a buyer, indicating the products, quantities and agreed prices for products or services with which the Seller has already provided the Buyer. ... A packing slip, sometimes known as a packaging slip or customer receipt, is a shipping document that accompanies delivery packages, usually inside an attached shipping pouch or inside the package itself. ...

See Also

Manufacturer Purchase Order Numbers MANPONS is an acronym that stands for Manufacturer Purchase Order Numbers. ...

References

1. ^ Dobler, Donald W; Burt, David N (1996). Purchasing and Supply Management, Text and Cases, Sixth Edition, Singapore: McGraw-Hill, p70.