Purchase orders are legal documents used by companies to record and control purchases. They are issued to companies that need to buy goods and services, and they contain important details such as the type of product to be purchased, the price, and the expected delivery time.
There are two main types of purchase orders: blanket purchase orders and standard purchase orders. Blanket orders are less precise than standard orders. However, they are often the most common PO type.
The process of releasing a purchase order starts with the establishment of a standing purchase order. This means that the organization already has a contract with a vendor and the terms and conditions of that contract are established. When it is time to make a purchase, the company sends a request to the supplier.
Once the supplier accepts the request, the company is ready to purchase the goods or services. An invoice is then created, which lists the delivered goods and services. It also tells the finance team about the commitment.
When the purchase order is accepted, the purchase becomes legally binding. Payment is released as per the terms and conditions set in the purchase order.
In addition to standard and blanket purchase orders, there are contract purchase orders. Contract purchase orders are similar to planned purchase orders. Both are commercial agreements that set out the details of the purchasing process and create a commercial relationship between the buyer and the supplier.
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