How do purchase orders work?

If you use purchase orders in your business operations, it is important to follow a succinct format to keep things clear. This article will outline the purpose of a purchase order, and detail what information should be included

Author: Tim Randall | Last Updated: 09/12/2021

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How do purchase orders work?

How do purchase orders work?

Many modern businesses and companies consider purchase orders to be a basic requirement. If you are a business owner, the likelihood is that you will have to send a purchase order whenever you plan to buy a product or service for your company. But what are purchase orders and how do they actually work?

First, let's cover the basics.

What is a purchase order?

A purchase order is a legally-binding document designed to list and confirm the products that are bought by the customer, how much those products cost, the delivery address, and other details the supplier needs to know. They allow business owners to keep track of their orders as well as monitor stock levels and provide the buyer with physical proof of purchase for record-keeping purposes.

What should a purchase order contain?

Whether it be physical or digital, the minimum that a purchase order should contain is:

  1. Item descriptions for any products provided
  2. A list of the products or services being purchased (these might include commodity codes or other identifying part numbers)
  3. The quantity purchased for each product supplied
  4. Price per unit with the correct evaluation of the necessary tax owed
  5. Delivery date and location, and any other information you have on the supplier
  6. Company shipping and invoice addresses should they differ
  7. Agreed payment terms and any additional terms that govern the deal between both parties

Below is an example of a purchase order with the corresponding sections labelled and numbered - 

Paper or electronic purchase orders?

Nowadays, with technology changing and evolving, it is more common to find electronic purchase orders as an attachment within an email that is sent from the buyer to the supplier. Purchase orders are usually a control mechanism to ensure that there are no discrepancies between what you order and the supplier invoice that you receive, which means you have more freedom to select a format that suits your business than you would with other documents.

For more information on purchase orders, or to see how Zigaflow can help your business processes, then book a demo today.

Tim Randall

Tim Randall

CEO

With an extensive background in business analysis and software programming, Tim heads up our software development team and loves nothing more than solving complex business challenges with simple easy to use software.

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