Purchase Orders

The Basics

POs can contain the following information:

• Your name, date, and company address
• Your supplier’s name and address
• Ship-to information
• The specific products you’re ordering, including product size, color, etc.
• The price per unit of each product
• The quantity of each product requested
• Each product’s SKU or UPC code
• Timeframe of delivery and payment
• Specific instructions like which shipping carriers, methods, or shipping accounts to use for delivery

As you can probably tell, specificity is important when issuing a purchase order. The more detail provided, the less room for any miscommunication with your supplier!

Creating a PO

As you craft a PO, be sure to take more than just the products and quantity you need into account. Here are some questions to ask yourself when you’re ready to create and send a PO to your supplier.

• Is any of my inventory on-hand at risk of a stock out?
• How much does each unit I’m ordering cost?
• How much will this PO cost in total?
• Am I waiting on any backordered inventory (product that hasn’t yet been delivered from a previous PO)?

There are two aims in asking yourself these questions: understanding whether or not the PO you’re issuing meets your demand and whether or not your bottom line can take the purchase.

As for the actual creation of purchase orders, it’s certainly possible to manually write them up or email them yourself, but e-retailers typically use some sort of inventory management software to create, fill out, and send their purchase orders.

When dealing with software, products and their respective suppliers are imported, and when the user receives an alert that quantity is low, they create and enter specifics into a PO that’s emailed directly to the product’s supplier at the press of a button.

Supplier Leverage

Once you’ve figured out the contents of a purchase order, the timeframe of delivery and payment are of utmost importance. Before sending the PO their way, be sure to figure out when you need the product and whether it needs to be sent to you all at once or in batches.

That said, a PO is a two-way street. It’s important to understand that a PO sent to the supplier is only legally-binding once they accept it. Much of the control over timeframe and payment belongs to the supplier — they have the leverage since they have the product you need. They’ll do their best to satisfy your needs as a client, but they may have their interests to look after as well.

Some vendors might require that you pay for part of the inventory requested before they ship it your way. Some vendors might be selling the same product to various merchants, choosing to deliver product to you in batches instead of all at once as a result. Some might request that a PO be paid for in full once it’s accepted, even if product must be backordered.

Regardless, list out a timeframe for delivery and payment. Before it’s accepted by the supplier, a PO is an offer. If the vendor has an issue with any of your requests, they’ll let you know.

Protecting Your Assets

POs aren’t just requests for product — they’re a major part of managing your supplier relations and protecting yourself operationally and legally.

Documents are important because, well, they document things. They can be referred to in the event that something is unclear or if something goes wrong. A PO is direct documentation of a transaction between you and your supplier, and it acts as a legally-binding contract once both parties accept it.

For instance, if your supplier shorts you on some inventory and fails to live up to the delivery timeframe that you’ve both agreed upon, the PO now has your back. Or, if you mistakenly ordered a certain quantity or suspect that the supplier messed up, the PO can be referred to to see who erred.

Completed POs

Until the supplier sends over every unit you’ve agreed on in the purchase order, the PO will remain open and active. If product is to be delivered over time, be sure to make note of the units you receive, whether it’s adding the total to a spreadsheet or inputting quantities in your inventory management software.

Only after a supplier delivers the PO in total is it fulfilled. Payment depends on the rules agreed upon, but it often takes place once the PO is completed. And, for all the reasons we’ve already mentioned, be sure to keep record of your POs, even if they’re closed.