What is PO? 4 common types of PO: Do you know them all?

PO (Purchase Order) is one of the important tools in supply chain management and purchasing. It acts as a bridge between the buyer and the supplier, helping to define specific terms related to the purchase of goods or services.

1. What is PO (Purchase Order)?

PO (Purchase Order) is a commercial document issued by a buyer to a supplier requesting the supply of goods or services. PO is a commitment to purchase based on previously agreed terms. It includes information such as product type, quantity, unit price, payment terms and delivery time.

Essentially, a PO helps confirm that the buyer intends to purchase a certain quantity of goods or services, thereby ensuring transparency and clarity in the transaction between the two parties.

2. Content on PO

A Purchase Order (PO) typically contains basic information such as:

• PO Number : Each PO has a unique number for easy tracking and lookup.
• Buyer Information : Company name, address, and contact information.
• Supplier information : Similar to buyer information, includes company name, address, and contact information.
• Description of goods/services : Details of the products or services to be purchased.
• Quantity : The quantity of goods/services requested.
• Unit price : Price of each product or service.
• Payment terms : Payment method and time.
• Time and place of delivery : Clearly define the time and place where the goods will be delivered.
• Terms of delivery (Incoterms) : Define the responsibilities of the buyer and seller in the transportation of goods.

3. Benefits of PO (Purchase Order)

PO is not only a tool for buyers to place orders but also brings many important benefits to both buyers and sellers.

Benefits for buyers

• Transparent and clear : PO helps buyers clearly define purchase conditions, avoiding unnecessary disputes with suppliers.
• Easy Management : By using PO , buyers can easily track and control the procurement process, from order placement to receipt.
• Cost Control : Using POs helps ensure that purchasing costs are accurately controlled and accounted for.
• Optimize supply chain management : PO helps define the steps in the purchasing process, thereby optimizing procurement and warehousing operations.

Benefits for sellers

• Clear confirmation : PO provides the seller with accurate information about the order, helping to prepare the goods quickly and accurately.
• Payment Guarantee : A PO is a purchase commitment, ensuring that the seller will receive payment upon delivery.
• Building trust : Using PO helps sellers strengthen relationships with buyers, building credibility and professionalism.

4. Common PO forms today

There are many different types of POs to suit the specific needs of each business. Some common types of POs include:

4.1. Standard Purchase Order

Standard Purchase Order is the most widely used standard PO type . It includes basic information about the product, quantity, price, payment terms and delivery time.

4.2. Blanket Purchase Order

Blanket Purchase Order is used when a business wants to purchase goods from a supplier over a long period of time. It does not require detailed information about each order but specifies the overall quantity and price.

4.3. Contract Purchase Order

Contract Purchase Order is often used in long-term sales contracts. This type of PO specifies the detailed terms of the transaction, from price, delivery time to quality regulations and payment terms.

4.4. Planned Purchase Order

Planned Purchase Order is a type of PO used to plan future purchases, suitable for long-term projects or production plans.

4.5. Service Purchase Order

This is a PO specifically for services rather than physical goods. It includes information about the type of service, price, and time of service.

5. What is the purpose of PO?

PO is not only a tool to request goods or services but also a legally binding contract between the buyer and seller. PO helps ensure that both parties clearly understand their terms and responsibilities, avoiding unnecessary misunderstandings and disputes.

The main purposes of PO include:

• Purchase requisition validation : Ensure that the buyer's requirements are met accurately.
• Create accountability : Once the PO is approved, both parties must adhere to the terms.
• Cost Control : PO helps track and manage purchasing costs.
• Delivery progress monitoring : Helps buyers track delivery times and ensure that suppliers deliver on their commitments.

6. Distinguish between PO and PI (Proforma Invoice) and Sales Contract (SC)

Although PO , PI , and Sales Contract are all important documents in commercial transactions, they have fundamental differences:

Criteria	PO (Purchase Order)	PI (Proforma Invoice)	Sales Contract (SC)
Purpose	Purchase authorization	Record the agreement	Terms of sale
Founder	Buyer	Seller	Seller or buyer
Time of establishment	Before delivery	Before delivery	Before or after delivery
Legality	Legal when approved	Less legal	Is a formal contract

7. PO (Purchase Order) usage process

Below is the standard procedure for creating and using POs :

1. Purchase request : The goods request department sends a purchase request.
2. Request Confirmation : Manager or relevant department approves the request.
3. Create PO : Purchasing department creates Purchase Order and sends it to supplier.
4. PO Approval : Supplier approves PO and sends response.
5. Delivery : Supplier makes delivery as required in PO .
6. Receive goods and pay : Buyer receives goods, checks and makes payment.

8. How to effectively manage PO for businesses

To effectively manage PO , businesses can apply the following measures:

• Use PO management software : Helps automate the PO creation and tracking process .
• Establish clear processes : Strict regulations on how to create, approve and track POs .
• Employee training : Ensure employees understand the process and responsibilities when using PO .
• Progress monitoring : Continuously monitor PO implementation progress to promptly detect and handle arising issues.

Conclude

Purchase Order (PO) is not only a purchasing management tool but also a platform to ensure transparency and clarity in commercial transactions. Understanding and using PO properly will help businesses minimize risks, optimize purchasing processes and ensure business performance.

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