Purchase Order (PO)
Definition:
A Purchase Order (PO) is a legal document issued by a buyer to a seller, indicating the types, quantities, and agreed-upon prices for products or services. It serves as an official offer to purchase, and once accepted by the seller, it becomes a binding contract between the parties.
Example:
Acme Manufacturing sends a Purchase Order to Steel Suppliers Inc. for 1,000 units of high-grade steel at a price of $500 per unit, with a delivery date of August 1st, 2023. The PO includes the payment terms, shipping instructions, and any special requirements or specifications for the steel.
Acme Manufacturing and Steel Suppliers Inc. could also choose to use a Blanket Purchase Order (BPO), a type of PO.
Why are Purchase Orders (PO’s) important to Procurement?:
Purchase Orders are critical for procurement teams as they provide a clear and detailed record of the purchase agreement, helping to avoid misunderstandings or disputes with suppliers. POs also facilitate budget tracking, invoice reconciliation, and inventory management, ensuring that the right goods or services are procured at the agreed-upon prices and delivered when needed.