Does your business use purchase orders to facilitate buying and selling? If not, you could be missing out on an important tool to reduce errors, ensure all bills — both incoming and outgoing — are paid, and have legal protection. How do purchase orders accomplish these? And how can you implement them? Here's what you need to know.
What Is a Purchase Order?
A purchase order is a written agreement by a buyer to purchase a set of goods under the listed terms. It is issued when negotiations have been completed but before the goods have arrived and been invoiced. Copies of the purchase order may be given to shipping and receiving, purchasing departments, accounting staff, customers, and even outside parties.
How Do Purchase Orders Help Buyers?
Buyers benefit from written purchase agreements which increase clarity about what's being purchased, when it's expected, and what the terms are. This record allows you to confirm the order on your end. Because it's a written record in either hardcopy or digital form, everyone in the company can know what's coming and when. Accounting, purchasing agents, job supervisors, managers, and owners can all consult POs.
Many companies also reduce time and effort by using POs along with receiving paperwork to verify that goods have been received in order. Accounting staff can then compare these to invoices and either pay them or contact suppliers (or others) for corrections — all without bothering other staff or departments. And because POs are records of pending purchases, staff can follow up on missing invoices.
How Do Purchase Orders Help Sellers?
As a seller, a purchase order also helps you ensure accurate sales. It represents a legal agreement to buy your goods, which can serve as protection if the seller rejects the order or says it's not what was requested. And as with buyers' copies of purchase orders, these written records make sure your staff knows what's been shipped and billed — and perhaps more importantly, what hasn't.
The PO could even help your bottom line. If you have a large pending sale that hasn't been invoiced, for example, this may not yet be on financial statements. But you could provide the purchase order to lenders, partners, and others offering credit based on your company value.
Where Can You Learn More?
Could the use of a purchase order system help your company be more efficient in its bookkeeping, shipping, receiving, and purchasing? Could it ensure more accurate financial statements, fewer conflicts with buyers or sellers, and faster turnaround? If so, start by learning more about purchase orders and their use in accounting by meeting with a qualified accounting service in your state today.