Purchase order

A purchase order (PO) is a commercial document issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services the seller will provide to the buyer. Sending a purchase order to a supplier constitutes a legal offer to buy products or services. Acceptance of a purchase order by a seller usually forms a one-off contract between the buyer and seller, so no contract exists until the purchase order is accepted. It is used to control the purchasing of products and services from external suppliers.[1]

Contents

Background

There are several reasons why companies use purchase orders.

Purchase orders allow buyers to clearly and explicitly communicate their intentions to sellers, and sellers are protected in case of a buyer's refusal to pay for goods or services. Purchase orders also help a purchasing agent manage incoming orders and pending orders. Purchase orders also are an economical choice for a business because they streamline the purchasing process to a standard procedure.

Getting financial assistance from commercial lenders or financial institutions is another reason of using purchase orders. There are various trade finance facilities that almost every financial institution allow to businessmen against such purchase order such as:

  1. Before Shipment credit facility
  2. Post Shipment credit facility
  3. Trade Finance facility
  4. Foreign Bill Purchase credit facility
  5. Bill retirement credit facility

Electronic Purchase Orders

Many purchase orders are no longer paper-based, but rather transmitted electronically over the Internet. It is common for electronic purchase orders to be used to buy goods or services online for services or physical goods of any type.

See also

References

  1. ^ Dobler, Donald W; Burt, David N (1996). Purchasing and Supply Management, Text and Cases (Sixth Edition ed.). Singapore: McGraw-Hill. pp. 70.