Every business owner should want to find ways to operate more effectively and efficiently. One of those ways is to use purchase orders.
What are Purchase Orders?
Purchase orders are documents sent from a buyer to a seller requesting a number of goods or services. They describe the details of an order including a description of the item(s), the quantity requested, delivery date, and payment terms. When the vendor accepts a purchase order, the document is legally binding on both the buyer and the seller.
How do Purchase Orders Work?
First, a business determines the need to purchase goods or services. Next, a purchase order form is completed with the details of the purchase to be made. Following internal approval, the form is sent to a specified supplier. Who either agrees or disagrees with the details of the purchase. If the supplier disagrees, the P.O. is canceled. If the supplier agrees, the items are delivered to the buyer and an invoice for payment is sent to the buyer. After the buyer pays the invoice, the order is completed and closed.
The Benefits of Purchase Orders for Small Businesses
Purchase orders offer many benefits for small and large businesses:
- Save time by specifying exactly what is needed. Often by referring to a catalog and exact line items.
- Assist with budgeting as well as provide spending controls as exact order quantities must be calculated and approved before placing an order. Purchase orders can provide an early warning for unanticipated expenses. In addition, they help track spending.
- Aid in planning by providing a record of purchases that can be used to examine purchasing needs and trends. Including cost trends.
- Prevent mistakes by documenting purchases.
- Provide legal protection due to their contractual relationship between buyer and seller.
- Help understand and manage vendors.
- Improve inventory management.
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