Shipping: 3 Tips for Understanding Purchase Orders

Purchase orders (also known as POs or contract purchase agreements) are an integral part of e-commerce businesses. You may have used them before, but do you realize how many different benefits they convey to your business?

In this article, we’ll explain what a purchase order is and all the information included in the form. In addition, we will outline three key tips for understanding purchase orders including that they provide legal protection, make tracking easier, and help audits go smoothly. But just in case that doesn’t cover everything you want to know about the purchasing process on B-Stock, check out our Buying Guide to answer any questions you may have.

Purchase orders are different from sales orders and invoices and can be a helpful tool in streamlining your operations. You may already be using an electronic purchase order system, generally managed with accounting software.

What is a Purchase Order?

Purchase orders are documents meant to record business transactions between a buyer and a seller. You, the buyer, issue the purchase order, and then as soon as the seller accepts the order, a legally binding contract is created between the two parties (buyer and seller).

Purchase orders should identify what is being purchased and the quantity, where the goods are being shipped to, and who the buyer and seller are for a specific transaction. They should also outline payment terms such as how much will be paid by the buyer and when the payment should be made to the seller.

What Information is Included in a Basic Purchase Order Form?

A purchase order form is a template used to create a purchase order. These forms are a wealth of information and are designed to be very sleek and easily referenced. These forms can vary but usually contain the following information:

Purchase Order Number

A unique identifying number assigned to each purchase order to make tracking easier.

Buyer Information

Information on the name, address, and contact information of the individual or business purchasing the goods.

Seller Information

Details on the name, address, and contact information for the company receiving payment for the goods.

Item Description

All the “need-to-know” details on the quantity, unit price, and total cost of goods.

Shipping Date

A record of the date when the goods will be delivered to the customer.

Shipping Address

To avoid confusion, be sure to clearly document where the goods will be delivered. This could differ from your billing address!

Billing Address

The location where the seller will send the invoice to the buyer for payment.

Order Date

A record of the date on which the business transaction happened.

Signatures

To be legally binding, purchase orders must have authorization signatures. One signature authorizes the purchase on behalf of the buyer and another accepts the order on behalf of the seller.

Additional Information Included in Some Purchase Orders

All of this may sound very dry, but each piece of information is important to properly track a transaction. Furthermore, purchase orders may contain a great deal of information about buyers, sellers, and their specific transactions beyond what is included in a basic purchase order form. Purchase orders may include additional details such as:

Currency

Details on the specific currency that will be used to pay for the goods.

Payment Method

It’s important to have all the information outlining how the buyer will pay. For example, they may prepay, pay in cash, wire transfer, or use a credit card or a check.

Delivery Method

Having an agreed-upon outline of how the goods will be delivered is key when doing an atypical transaction. It’s always good to have this in writing, including who the carrier is and if the goods will be delivered by courier or picked up.

Governing Law

In case of litigation, the PO outlines which jurisdiction applies to the transaction. By default, the seller’s state laws apply, but this is good to include for clarity’s sake.

Terms and Conditions

Purchase orders may contain details in “fine print” regarding the seller’s policies on returns and lost or damaged items. If goods can be returned, the seller will indicate the return time frame and whether the buyer will have to pay a restocking or return shipping fee or not.

Insurance

The form often contains information regarding if the seller insured the goods to protect both parties if the package is lost or damaged.

3 Tips for Understanding Purchase Orders

Companies all over the world use purchase orders to conduct business every day. They are incredibly useful tools that can greatly benefit both buyers and sellers. There are three main benefits of using POs you should understand that will help you help your business.

1. POs Provide Legal Protection

As legally binding contracts, purchase orders protect both buyers and sellers. In the event of a dispute over a transaction, having a this form can easily clear up issues that would be impossible to resolve without a legally binding document. This is especially important for being able to maintain relationships with suppliers because everything is in writing and clearly outlined.

Purchase orders serve as on-the-record legal documents. Once a vendor receives and signs off on the PO, both parties are legally bound to hold up their end of the deal.

Remember that just sending a purchase order to a seller isn’t enough to make it a legal document. The seller must “acknowledge” the document by signing it before it becomes a legally binding contract.

2. Purchase Orders Make Tracking Easier

PO forms help buyers keep account of all the goods and services they have ordered, monitor how they will be paid for, and track when they are arriving.

POs can also help sellers. By assigning a number to each PO, companies can easily track the orders they have sent, which is a massive benefit to the management of inventory and accounts receivable.

For your reselling business, these forms help operations run smoothly. You can track orders with confidence knowing that the supplier is contractually bound to deliver. Plus, accounting departments love POs because they allow businesses to budget better—knowing they have a contractually-enforced purchase price.

3. POs Help Businesses Avoid Audit Issues

Finally, purchase orders can be a lifesaver for businesses who get audited. They provide auditors with a conclusive audit trail and a simple way to double-check invoices and packing slips.

Getting audited without these documents is a long, drawn-out process of pouring over invoices, emails, and vendor receipts. Not only will you save yourself time and money during an audit if you have PO forms, but you’ll also feel far less stressed.

Now you know nearly everything there is to know about purchase orders. You can see how they can be useful for both buyers and sellers based on all the benefits they convey. For more B-Stock buyer education, be sure to check out the Buying Basics series on our blog.