Purchasing goods from a vendor for your business doesn't follow the same process as purchasing goods for personal use from a store. Because of sales volumes and the need to track inbound and outbound shipments and payments, many vendors require customers to provide them with a purchase order, or PO, before they finalize an order. A purchase order is a document that signals your commitment to purchase goods from a vendor at an agreed rate.

Purchase Order Basics

A purchase order is a formal order for goods you give to a vendor in order to complete a transaction. It’s a formally binding contract to purchase goods or services, and should include all details of your transaction, including the price per unit you negotiated, as well as the number of each item purchased, including details such as style and color. Many purchase orders also formalize payment and shipping terms. Each purchase order your company issues should be uniquely numbered to track future payments and match with shipping records.

Purchase Orders in an Acquisitions System

While a purchase order may be necessary to complete an order with a vendor, it also provides structure to your company’s purchasing system. In ideal cases, a single purchasing manager will handle all purchasing and make buying decisions based on requisitions made by other departments or individual workers. This system of creating requisitions and purchase orders eliminates duplicate purchases from departments that don’t communicate with each other, and allows a purchasing manager to secure the best prices and necessary quality of goods.

Purchase Orders in Accounting Systems

Accounting departments also use purchase orders to help in payment and billing. For buyers, accounts departments use purchase orders to tie payments to received orders, ensuring that orders aren’t double shipped, double billed or otherwise redundant. Sellers use POs in much the same way, issuing a single shipment per purchase order and associating purchase orders with invoices and billing. Purchase orders can also be used as an informal measure of a company’s liabilities or revenue that’s still active.

Creating Purchase Orders

If your company doesn’t have a formalized acquisitions system that issues purchase orders to vendors as needed, you can easily develop a system. Many stationary stores carry multi-part purchase order forms that you can customize with your company’s name and information, then provide one of the form’s layers to vendors for use in their shipping and billing systems. Each purchase order should bear a unique number so that it may be used to track a single purchase or shipment.