The purchase order process is often mistaken for an invoice. This concept refers to the relationship between a retailer and its suppliers. In this write-up, we’ll go through what it is and why it is so important when running an online business.
What is a purchase order (PO)?
A purchase order is an official document that authorizes a transaction for the purchase of services or goods from a supplier. This paper is often requested by retailers and plays an important role in business management. In detail, the purchase orders bear the name of the company providing the goods or services, the PO number, the date, the number of items, the product description, price, and payment information.
Purchase Order Process
The purchase order process is a broader procurement including specifying and confirming the need for services or goods before processing the order.
Step 1: Creating a Purchase Requisition (PR)
It is to create a document and to get permission for placing a purchase. However, there might be little amendment before it is approved or canceled.
Step 2: Issuing the purchase order (PO)
After the approval of this PR, both sides have to agree on the delivery, prices, terms, and conditions. Then your staff needs to prepare a PO. In large purchases, there may be a request for a proposal issued to their suppliers. However, before this, it’s a must to sign a financial authority acceptance. The PO is issued electronically to the supplier.
Step 3: The supplier approves the purchase order
In case of incorrect or unacceptable details, the supplier requests amendments. The supplier approves the amended PO via email or through an e-procurement platform.
Step 4: Purchaser records the PO and files, awaiting delivery.
Within the delivery, the organization reviews the purchase to qualify the standards. Specifically, a Goods Received Note deals with tangible products while services are signed off as a guarantee.
Step 5: Approval and payment.
The invoice makes sure that the PO is acceptable. If there’s nothing wrong, the invoice payment is complete as per the agreed payment terms.
Best PO process practices
Easy as it may sound, it takes a lot of effort to process a purchase order. In other words, a small mistake along the way would damage your business. As a result, we’ve outlined the best purchase order process practices as followed.
- Establish a panel of up-to-date preferred suppliers providing reasonable prices, quality products, and reliable delivery services. It allows comparing supply terms and prices with minimum delay.
- Ensure all the involved employees in the purchase order process understand the procedures, policy, and approval methods to adhere to.
- Engage with regular key suppliers through a Master Agreement defining pricing, terms, and conditions, with catalogs.
- Purchasing information, if possible should be accessible and user-centric. Hence try to streamline the PO process.
- Maintain good relationships with reliable suppliers to solve problems, if any, quickly.
Problems to watch out for
Now you know how to deal with purchase order processes. However, there remain some issues you should be aware of.
- PO issued verbally or in writing without financial authority may face consequences for the budget and the issuer.
- Inflexible suppliers do not offer discounts. Thus they might deny paying delivery costs.
- Correct any error on orders such as wrong sizes, quantities, or delivery dates before sending out.