What is a Purchase Order?
A purchase order, also known as a PO, is a legally binding document that a customer sends to a vendor to authorize a transaction. Purchase orders specify the goods the buyer wants and how much they wish to receive. These contracts assist in the documentation of transactions for the buyer and seller.
Significance of Purchase orders in E-commerce Shipping and Delivery
Initially, the purchase order can serve as documentation of the exchange of goods between the seller and the buyer.
A purchase order also has the following significance:
- Avoiding duplicate orders – The main benefit of a purchase order is that it helps prevent orders from being placed twice. POs can assist in keeping a record of what was ordered and from whom when a company chooses to scale the business.
- Keeping track of incoming orders – Purchase orders make it easy and affordable for the buyer to make purchases. Purchase orders can also shield the customer from scams.
How Purchase Order Works
Purchase order works in the following steps:
- The buyer makes a list of goods required.
- The buyer chooses the appropriate vendor from which they want to purchase the listed goods.
- Subsequently, the buyer prepares a PO and sends it to the selected vendor. The purchase order could be sent electronically or on paper.
- Upon receiving the purchase order, the vendor verifies the details and confirms the execution of the order. This confirmation makes the purchase order a legally binding document between the buyer and the vendor.
- Next, the vendor prepares the order and delivers it to the buyer. The purchase order number is mentioned on the invoice for cross-checking purposes.
- After verification, the buyer makes the required payment to the vendor.
Use Case With Purchase Order
The purpose of the purchase order is to safeguard both the customer and the seller. For instance, a furniture company receives an order of 100 wooden chairs. Subsequently, they prepare a purchase order enlisting the same and send it to their supplier. The supplier accepts the PO, prepares the order, and delivers it to the company. Lastly, the company verifies the items, matches the PO number, and makes payments.