If a company uses a purchase order system of any kind, it has the option of utilizing blanket purchase orders for the purchase of frequently purchased items or services. Blanket purchase orders are designed to make procurement processes more efficient whenever possible.
Definition of a blanket purchase order
Oftentimes, a blanket purchase order is a long-term agreement between a company and its supplier. Although a single blanket purchase order number is only set up one time, it can allow multiple releases against it at different times throughout a set time period. A “release” occurs each time a blanket purchase order quantity is fulfilled and invoiced against.
Purpose of a blanket purchase order
A blanket purchase order increases efficiency by eliminating repetitive data entry and multiple one-time purchase orders. In addition, it streamlines the invoicing and purchasing processes so that invoices are paid in a more timely manner. According to AllBusiness.com, a blanket purchase order can also be used for an automatic reordering process.
Difference between a regular purchase order and a blanket purchase order
A regular purchase order is used for one-time purchases, while a blanket purchase order uses the same purchase order number for multiple purchases (releases).
Uses for a blanket purchase order
In many companies, blanket purchase orders are used to cover long-term service or maintenance agreements, as well as standing orders for goods or services.
Let’s say that your company wishes to set up an agreement with a landscaping service for monthly lawn care. Your company cannot pay for the entire year of service upfront; instead, it wishes to create a blanket purchase order so that it can pay the lawn company each month. In the purchasing system, a buyer will create a blanket purchase order for 12 months on a single line of the purchase order; it will include the monthly dollar amount as well. The buyer will also create blanket order rules that will set an expiration date (12 months from now) as well as how many months are allowed to be released at one time. Each month, as the lawn care service provider performs the work and invoices for it, the buyer will generate a release of one month in order to pay the invoice. Once 12 releases have been done against this blanket purchase order, the purchase order is complete.
- Medioimages/Photodisc/Photodisc/Getty Images