Purchase order
Encyclopedia
A purchase order is a commercial
document issued by a buyer
to a seller
, indicating types, quantities, and agreed prices for products or services the seller will provide to the buyer. Sending a purchase order to a supplier constitutes a legal offer to buy products or services. Acceptance of a purchase order by a seller usually forms a one-off contract
between the buyer and seller, so no contract exists until the purchase order is accepted.
Purchase orders allow buyers to clearly and explicitly communicate their intentions to sellers, and sellers are protected in case of a buyer's refusal to pay for goods or services. Purchase orders also help a purchasing agent manage incoming orders and pending orders. Purchase orders also are an economical choice for a business because they streamline the purchasing process to a standard procedure.
Getting financial assistance from commercial lenders or financial institutions
is another reason of using purchase orders. There are various trade finance
facilities that almost every financial institution allow to businessmen against such purchase order such as:
Trade
Trade is the transfer of ownership of goods and services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and...
document issued by a buyer
Buyer
When someone gets characterised by their role as buyer of certain assets, the term "buyer" gets new meaning:A "buyer" or merchandiser is a person who purchases finished goods, typically for resale, for a firm, government, or organization...
to a seller
Vendor (supply chain)
A vendor, or a supplier, is a supply chain management term meaning anyone who provides goods or services to a company. A vendor often manufactures inventoriable items, and sells those items to a customer.- History :...
, indicating types, quantities, and agreed prices for products or services the seller will provide to the buyer. Sending a purchase order to a supplier constitutes a legal offer to buy products or services. Acceptance of a purchase order by a seller usually forms a one-off contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
between the buyer and seller, so no contract exists until the purchase order is accepted.
Background
There are several reasons why companies use purchase orders.Purchase orders allow buyers to clearly and explicitly communicate their intentions to sellers, and sellers are protected in case of a buyer's refusal to pay for goods or services. Purchase orders also help a purchasing agent manage incoming orders and pending orders. Purchase orders also are an economical choice for a business because they streamline the purchasing process to a standard procedure.
Getting financial assistance from commercial lenders or financial institutions
Financial institution
In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries...
is another reason of using purchase orders. There are various trade finance
Trade finance
Trade finance is related to international trade.While a seller can require the purchaser to prepay for goods shipped, the purchaser may wish to reduce risk by requiring the seller to document the goods that have been shipped. Banks may assist by providing various forms of support...
facilities that almost every financial institution allow to businessmen against such purchase order such as:
- Before Shipment credit facility
- Post Shipment credit facility
- Trade Finance facility
- Foreign Bill Purchase credit facility
- Bill retirement credit facility
Electronic Purchase Orders
Many purchase orders are no longer paper-based, but rather transmitted electronically over the Internet. It is common for electronic purchase orders to be used to buy goods or services online for services or physical goods of any type.See also
- Sales orderSales OrderThe sales order, sometimes abbreviated as SO, is an order issued by a business to a customer. A sales order may be for products and/or services. Given the wide variety of businesses, this means that the orders can be fulfilled in several ways...
- Blanket orderBlanket orderA blanket order is defined as an order the customer makes with its supplier which contains multiple delivery dates scheduled over a period of time, sometimes at predetermined prices. It is normally used when there is a recurring need for expendable goods. Hence, items are purchased under a single...
- Purchase requisitionPurchase requisitionPurchase Requisition or Purchase Request is a precise document generated by an internal organization or external to notify the purchasing department of items it needs to order, their quantity, and the time frame that will be given in the future. It may also contain the authorization to proceed...
- InvoiceInvoiceAn invoice or bill is a commercial document issued by a seller to the buyer, indicating the products, quantities, and agreed prices for products or services the seller has provided the buyer. An invoice indicates the buyer must pay the seller, according to the payment terms...
- Remittance adviceRemittance adviceA remittance advice is a letter sent by a customer to a supplier, to inform the supplier that their invoice has been paid. If the customer is paying by cheque, the remittance advice often accompanies the cheque...