What is a Purchase Order?

Purchase Order

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Purchase Order

A Purchase Order (PO) is a commercial document and first official offer issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services. It is used to control the purchasing of products and services from external suppliers.

In a typical process, a purchase order is created and sent to a supplier to either initiate an order or respond to a quote. The supplier then fulfills the order and invoices the buyer based on the purchase order.

Key details in a Purchase Order often include:

  • Purchase Order Number: A unique identification number for the order.
  • Date: The date when the PO was issued.
  • Buyer and Seller Information: Name, address, and contact details of both parties.
  • Delivery Date: The agreed date of delivery for the goods or services.
  • List of Items: Detailed list of all items being purchased, including quantities, descriptions, unit prices, and total cost.
  • Terms of Payment: The agreed terms of payment (immediate payment, payment in 30 days, etc.).

The creation of a purchase order creates a legal contract between the buyer and seller. Once the seller accepts the purchase order, it forms an agreement between the parties on the terms of the sale, and no amendment of the terms will be entertained without the mutual consent.

Example of a Purchase Order

Let’s say a company, Office Innovations, wants to purchase 50 ergonomic chairs from a supplier, Comfort Chairs Ltd. Office Innovations would create a purchase order that may look something like this:

Purchase Order

  • Purchase Order Number: PO123456
  • Date: August 7, 2023
  • Buyer Information: Office Innovations, 123 Business Park, New York, NY, 10001, contact@officeinnovations.com
  • Seller Information: Comfort Chairs Ltd, 456 Industrial Estate, Los Angeles, CA, 90001, sales@comfortchairs.com
  • Delivery Date: August 20, 2023
  • List of Items:
    • Description: Ergonomic Chair Model E45
    • Quantity: 50
    • Unit Price: $200
    • Total Cost: $10,000
  • Terms of Payment: Net 30

This purchase order would then be sent to Comfort Chairs Ltd. Upon acceptance, it would become a legally binding contract. Comfort Chairs Ltd is then expected to deliver the 50 chairs by August 20, 2023, and Office Innovations is expected to pay the $10,000 within 30 days after receiving the invoice.

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