How to Make a Purchase Order: A Complete Guide

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Buying and selling are easy for an individual because there is direct communication between two parties. But as the number of people increases, communication of purchasing transactions becomes difficult. Because the workload escalates.

Thus, organizations prefer purchase orders to streamline procurement. However, the task is to create precise and effective purchase orders to send.

Thus, we have come with up the steps on how to make a purchase order and its types that will make your purchase orders into the approval process.

Let’s start by getting a clear concept of the purchase order.

What is a Purchase Order?

A purchase order is a process of purchasing transactions between contractor and supplier. In this process, the first contactor decides to buy goods and services from the vendor.

The contractor approaches the vendor for it and after communicating about it, creates a purchase order for it. Later, the contractor sends PO to the vendor for the approval of goods and services availability and price.

The vendor reviews and check the goods and services, and send the approval to the contractors.

A purchase order is created to track and streamline the business finances. It also has multiple benefits for the organization. Following are the benefits:

  • Ease inventory management
  • Tracking multiple payments
  • Easy to manage and track large orders
  • Records for financial audits
  • Manage payment terms between two parties

Moreover, every purchase order has a unique number that helps to track the transactions faster. In a nutshell, it is an official record that signifies transactions between both the buyer and seller.

Other than that, the event of miscommunication and fraud decreases. Now, let’s dive into steps on how to create a purchase order.

How to Create a Purchase Order

how to create a purchase order

    1. Choose Medium

    Not every business functions the same, similarly, you need to choose a medium or method to make a purchase order. You can go for the traditional method by writing on paper or opt for the digital method.

    There are multiple free purchase order template online and invoice software that helps you to generate purchase order faster. Why is it essential to choose a medium in the first stage of creation? Because it will give you a clear idea about the purchase orders.

    As there are different types of purchase orders which we will learn ahead. Once, you have chosen the medium, it is time to fill in the data.

    2. Add Information

    Will you take orders without knowing what the work is? No, most probably you would not; likewise, you cannot send a purchase order without filling in mandatory information. One piece of information and your entire hard work of creating PO will be a loss.

    What Information and data come under Purchase Orders:

    • Company’s name
    • Date of purchase
    • Order number
    • Quantity size
    • Amount
    • Phone number
    • Tax number
    • Email address
    • Delivery date

    Those were the necessary data that you need to add to create purchase orders and will be placed at the top right.

    3. Mention Shipping Address

    A shipping address and shipping date are crucial factors of the purchase orders. While creating a purchase order, the buyer and seller address delivery dates and shipping costs (if included) should be included in the description.

    It will help to keep both buyer and seller on the same page and avoid miscommunication and disagreements. Nevertheless, ask the seller if any items are not available or on backorder, and if that’s the situation ask them to note them in the shipment. So, you can update your records.


    Note

    Provide a due date to the seller to approve or fill the purchase order

    Also, you can mention it in the ‘memo’ section of the purchase order which is at the bottom part. So, your PO process does not face any issues further.

    4. Sub Total and Total Item

    After all the details are filled in, it is time for calculation. In the purchase order creation, it is a vital step because it needs to be done attentively. For that make a subtotal line at the end where the list of the total price is mentioned; just before applicable taxes.

    Next is the tax line, which is for sales tax and is placed between subtotal and total. Last but not least is the total line where the sum of the entire amount a buyer has to pay should be mentioned in the purchase orders.

    From the header to the button, every information and step is important so do not skip it. If your purchase order is linked to legally binding, you need to sign the document. But there’s still some catch left in the process and that is types of purchase orders.

    Several contractors or small business owners are not aware of the types of PO and think every PO is the same. However, they are not entirely wrong as the format remains the same but information and pattern change.

    Let’s find out that in our next section on different types of purchase orders.

    5. Download Purchase Order Template

Types of Purchase Orders:

    1. Standard Purchase Orders

    It is the most used and popular purchase order. This purchase order includes primary information like delivery schedule, delivery date, payment terms, and quantity. In standard purchase orders, the buyer knows and has a clear idea of the details of the purchases.

    The buyer can identify what services they are buying and what items from the sellers in the standard purchase order.

    2. Planned Purchase Orders

    As the name suggested, it is the planned purchase order that buyers give in the context of the future. It is an estimate that is used when the buyers are uncertain about the delivery date and quantity.

    Hence, the buyer only knows what they are buying and the cost per item, but because of half information, he or she sends planned purchase orders.

    3. Contract Purchase Orders

    The contract purchase order is the most formal purchase order document. In this purchase order, both buyers and sellers sign a contract regarding the purchase. A contract purchase order is used by a large enterprise that wants to be safe.

    It is also considered legal protection for organizations. This purchase order is issued after a mutual agreement between two parties.

    4. Blanket Purchase Orders

    If your business deals with large orders, blanket purchase orders would be a good choice for you. In these purchase orders, the buyer gives multiple orders at one time to negotiate discounts on the amount.

    The blanket purchase order and planned purchase order are similar because both of them are applied in advance.

    Frequently Asked Questions
    1. How do you create a purchase order?

      You can use online templates or invoicing software like InvoiceOwl to create a purchase order for your business.


    2. Who initiates a purchase order?

      The buyer initiates the purchase order and it is considered after the approval of the seller.


    3. How do I make a purchase order in Word?

      To make a purchase order in the word you need to follow the below steps:

      • Open the Microsoft Word document
      • Click on the MS Office icon on the top left
      • ‘List’ will appear in that click ‘new’
      • There you will find the option of templates, choose ‘purchase orders’ in it.

    Looking to generate faster and more accurate purchase orders?

    InvoiceOwl is an efficient invoicing app that helps contractors to generate purchase orders on the go.

    Create Your Own PO

    Creating a purchase order is quite easy if you follow the right method. But do you want to make it easier, simple, and most of all less time-consuming? If yes, then opt for an invoice software like InvoiceOwl to streamline your purchasing process.

    The software will help you to save time and effort by offering an automation process. So, you don’t have to worry about missing a purchase order date, tracking payments, billing address, business name, and order details.

    As everything will be saved by the software. All you have to do is fill in the information and you are ready to send your purchase order to the client.

    Thus, why don’t you and see how effortless the procurement process gets.

Author Bio
Jeel Patel
Jeel Patel
Founder

Jeel Patel is the Founder of InvoiceOwl and is the main curator & writer of the content found on this site. With ideals of quality, commitment, and perseverance, he believes in creating lasting business relationships with the clients.

United States

Herndon

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