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What Is a Purchase Order?

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by Beroe Inc,
4 November 2022

What Is a Purchase Order (PO)?

The drafting of a purchase order, sometimes called a purchase agreement takes place after

supplier selection is complete. Purchase orders often contain a large number of details regarding policies, because it is effectively a legally binding document. 

When a company orders from one of its vendors or suppliers, the purchasing department will issue a purchase order as the commercial source document. 

The document lists information about the items to be purchased, including the kinds of goods, the quantity, and the cost. It is, in essence, the buyer who drafts the contract when purchasing from the seller.

Purchase orders offer a company several advantages. 

  • Avoids duplication of orders

The primary benefit is that it helps stave off orders from being placed twice. POs can assist in keeping track of what has been ordered and from whom when a business decides to scale its operations.

Additionally, it can be challenging to match the invoices when a buyer orders similar goods. The PO acts as a check to cover the outstanding invoices.

  • Facilitates legal documentation

Purchase orders act as legal documents and assist in preventing any lingering issues with the transaction.

  • Serves as a directory for incoming orders

Additionally, POs aid in tracking incoming orders, and a well-organized purchase order system can facilitate easier inventory management and shipping.

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