A purchase order can be defined as an official document that is issued by a customer or potential customer that commits to paying the seller or supplier for products that are going to be delivered in the future. Simply put, a purchase order can be considered an order for products or services in advance with no payment exchanged until the order is fulfilled.

Purchase orders typically contain the quantity of the order, the product or service that is being ordered, the specifics and description of the items that are being ordered, the price per unit, the date that the item needs to be delivered, the location that the buyer would like the item to be delivered to, the billing address that the buyer would like to be billed at, and lastly, the terms of payment, like within thirty days or payment directly upon delivery.

Each purchase order issued by your business or businesses that you would like to work with comes with specific numbers that allow you to trace the transaction and how the whole interaction ended. In this guide, we will be going over how purchase orders are used, the pros and cons, and how this can be beneficial to you.

How are Purchase Orders Used?

Purchase orders basically make the purchasing process so much easier, it starts out with the buyer selecting what they would like to purchase, the buyer will issue a purchase order to a business, the business confirms that they can fulfill the order with no hassle, the business preps the order by pulling the request out of the inventory and schedules all the necessary staff needed to fulfill the order.

At this point, the business fulfills the order or services requested of them, the business then issues an invoice for the payment of the services or products matched with the same number issued to the purchase order, the customer then pays for the services or products based on the terms that were agreed upon in the purchase order.

What are the Pros?

Purchase orders can improve the accuracy of your records for your inventory and even your financial management. The budgeting can even be improved through purchase orders since you can prepare inventory and funds before any purchase orders or invoices are issued. Timely deliveries are improved too since you know when to ship an order out ahead of time to fulfill an order. When dealing with purchase orders you can set the terms in a way where you have more than enough time to prepare an inventory and fulfill their order. Tracking all the transactions becomes easier because of matching purchase orders and invoice numbers and monitoring.

What are the Cons?

All things with pros come with cons, and the con for purchase orders would be that there are more things to track due to the purchase order and credit cards can easily serve the same purpose as a purchase order if utilized and executed correctly.

Now that you know how purchase orders are used, what's in them, and how they work, you are more than prepared to start reaping the benefits of using them. It is definitely a win-win situation for both seller and buyer and it opens up a whole new way of doing business on your end. Just always remember that tracking each purchase order and matching invoice is essential to make these kinds of transactions work properly.

Tracking and monitoring each of the purchase orders you issue or you get issued, can definitely show you how to prepare for each order and evolve your business by accepting it as a payment arrangement.