Financial Forecasting

Purchase orders can be described as any document that spells a legal relationship between a buyer and a supplier when the buyer tries to procure an item or service from the supplier. It is usually developed by the buyer and sent to the supplier. Typically, it contains a purchase order code and an outline of the kinds and quantities of goods or services required. In recent years, specialized applications are used to develop purchase orders, making for easy tracking and inventory management.

  1. Purchase Order Functions
  2. The Processes that a Purchase Order Undergoes
  3. How a Supplier Uses a Service Order
  4. Conclusion

Purchase Order Functions

In most cases, a purchase order is used by an organization that wants to procure goods or services on its account. It allows the service provider to supply the service or item to the buyer before the actual payment is made. This process is possible as the purchase order serves as legal protection against risk. Additionally, purchase orders allow for the comparison between

different vendors to determine the best deal.

Purchase orders ensure the completion of payment for orders. Also, buyers retain a copy of a purchase order to ensure the timely reception of goods or services.

The Processes that a Purchase Order Undergoes

Immediately after the generation and approval of a purchase order by a buyer, the order proceeds through several processes. These processes are described as follows.

Submission

Usually, the procurement department or unit of an organization is responsible for creating purchase orders, which is done using a specific type of software. This software typically allows for improved tracking, management, and submission of purchase orders to service providers. All generated purchase orders contain the unique order number, which allows for matching of purchases with shipments. Additionally, other useful information is provided on the purchase order, which includes shipment address, shipping date, billing address, inventory of requested goods with prices, and quantities. Software applications that support creation and submission of purchase orders provide templates with fields that allow an organization to input the data of required items or services and sends it to the service provider for subsequent supply.

Processing

Went the purchase order is shipped to the service provider, the status of the order changes to “in-progress” status. This status remains the same until the organization physically receives the goods. The received order is scanned into the inventory to allow for matching with the purchase order. When the correct match is made, the order’s status changes to “processed”. At this point, the buyer is obligated to remit funds for the received goods. All payments made to service providers should contain each purchase order’s code to guarantee accurate disbursement of payment.

How a Supplier Uses a Service Order

Purchase orders are not only used by buyers but rather, they are also used by suppliers. Suppliers utilize purchase orders to deliver and request payment. As soon as the supplier receives a purchase order, it is utilized to gather all purchased items for packing and shipment. Next, an invoice note is developed, which contains all information on the purchase order and more. The invoice is attached to the package and shipped to the shipping address of the buyer. When shipment leaves the supplier’s warehouse or store, the supplier records information in the inventory scheme.

The inventory scheme is filled and managed electronically. Paper copies are filled where required. The supplier marks the order as ‘awaiting payment’ within its electronic inventory system. To ensure proper management and collection of payment, a supplier must be sure to input reminders of deadlines and essential payment dates.

Conclusion

The purchase order is instrumental in the procurement of items or services for both buyers and suppliers. The buyers usually produce, approve, and send purchase orders to service providers for supply. The suppliers make use of the same purchase orders to supply goods to the buyers at the required shipping addresses.