What is a purchase order? How to handle purchase orders effectively on e-commerce stores?

Using purchase orders is a necessity in the current shopping process. It helps store owners control the process of acquiring goods and services. An efficient purchase order (PO) system is a useful tool for the management team to keep track of pending, completed, and future purchases.

In this blog, we will give an overview of purchase orders and some tips to help store owners control it effectively.

What is a purchase order?

A purchase order, abbreviated as PO, an official document between a seller and a buyer. It helps the buyer to be able to place an order without immediate payment. At the same time, in the seller’s perspective, it is a way to offer the buyer credit without risk as the buyer is obligated to pay once products or services are delivered.

Purchase orders include the detail of a variety of requirements, the type of product, quantity, price, and timeline of delivery.

Each purchase order has a unique number, which helps both buyers and sellers track delivery and payment throughout the system, as well as the detailed information. The more specific information you include, the more effective your PO is.

Benefits of Purchase Orders

Purchase orders (POs) play a fundamental role in the procurement process of businesses. They are legally binding documents that formalize the intent to purchase goods or services from a vendor.

Manage Costs Effectively

Initiate and dispatch purchase requisitions and orders directly within the system, eliminating the reliance on paper, spreadsheets, or emailed documents. Implement checks to prevent duplication and ensure a secure ordering process.

Enhance Visibility

Utilize a digital system to gain transparent insights into purchased items and responsible buyers. Centrally check budgets, avoiding fragmented systems or the challenges of paper-based tracking.

Streamline Processes

Automate tasks triggered by purchase requisitions, facilitating swift approvals from Finance or Purchasing. Integrate seamlessly with ERP or finance systems to enhance control and visibility.

Optimize Supplier Relations

Select from an array of approved suppliers managed during system setup. Foster stronger relationships and potential advantageous deals through consistent orders with preferred suppliers.

Instill Confidence

Empower finance teams with a Purchase Order received prior to the invoice, promoting prompt payment with confidence. Eliminate delays and frustration associated with verifying orders in the absence of a Purchase Order System.

Enhance Predictive Insights

Anticipate contract expectations from regular customers and efficiently identify incoming products for improved inventory and shipping management.

Create an Audit Trail

Facilitate financial or process audits by systematically tracking, storing, and linking information pertaining to each order.

Provide Legal Protection

Recognize purchase orders and invoices as legal documents, offering protection in case of disputes over orders or agreed-upon prices.

Support Remote Work

Accessible from any location with an internet connection, promoting flexibility in hybrid work environments.

Minimize Overheads

Eliminate the need for physical documents, resulting in savings on paper, printing, and postage costs. Utilize historical data stored in the system to compare prices and secure better deals for future purchases.

Types of purchase orders

There are four types of purchase orders.

• Standard purchase orders

A standard purchase order is the most used and the easiest to understand. It is used for irregular, infrequent, or one-off procurement. It contains a complete specification of the purchase, setting out the price, quantity, and timeframes for payment and delivery.

For example, a restaurant wants to buy new tables and chairs. The restaurant owner will raise a standard purchase order to a supplier. The contract will be completed once the chairs and tables are delivered in an excellent performance.

• Planned purchase orders

A planned purchase order contains the same detail and information as a standard one. But it omits dates for payment and delivery, which are treated as tentative dates. All the necessary information needs to be shown in the planned purchase order, such as details of the goods and services and their costs. When the delivery information for some of the items is determined, it will issue a release to confirm the delivery schedule.

For instance, a company intends to buy 120 items each year. They will make a planned purchase order with a supplier, including a tentative delivery schedule, to order ten articles per month throughout the year. However, the monthly purchase would not be carried out until the company creates a release to confirm the delivery date and location for each order.

• Blanket purchase orders

A blanket purchase order is the same as a planned purchase order, but in addition to omitting delivery information, it also does not show any specific quantity. Pricing may or may not be confirmed in a blanket purchase order.

This type of order is typically used for repetitive procurement of a specific set of items from a supplier, such as primary material and supplies.

For example, a business regularly requires components like printing paper and ink to serve an undetermined number of clients. It may establish a blanket purchase order with their supplier.

• Contract purchase orders

The only thing confirmed in a purchase order is the vendor’s details and potentially also payment and delivery terms. The products to be purchased are not specified.

A contract purchase order is used to create an agreement and terms of supply between a purchaser and vendor as the basis for an ongoing commercial relationship. To order a product, the purchaser may refer to the contract purchase order when raising a standard purchase order.

How do purchase orders work?

The purchase order process is the journey. It starts when buyers decide to buy a product or service for their business. The PO includes PO number associated with the shipping date, billing address, product request, quantity, and price. Leveraging procure-to-pay software can simplify this journey by automating the creation and tracking of purchase orders, ensuring accuracy and efficiency throughout the procurement process.

The seller received the purchase order and confirmed the company could fulfill it. If not, the seller tells the buyer that the order cannot be completed and cancel the PO.

If the order is accepted, the seller begins preparing all the required things by checking the inventory and scheduling the necessary personnel.

Once the order is shipped or the service is provided, the buyer can track the PO number on the packing list, so they will know when the order will arrive.

After that, the seller issues an invoice for the order with the PO number on that so it can be easily matched with the delivery information.

The buyer will pay the invoice according to the terms on the purchase order they issued.

How to Create a Purchase Order?

• Header Section: Include your company name, address, buyer’s name, and contact information at the top of the purchase order. This provides clarity on the origin of the order.

• Vendor Information: Specify the supplier’s details, including their company name, address, sales representative’s name, and contact information. This ensures the order is directed to the correct recipient.

• Purchase Order Information: Assign a unique purchase order number and include the date of the purchase order. If applicable, include a vendor ID and any other specific order information.

• Order Details: List the items being ordered with specific details for each line item. Include the SKU/item number, quantity, price, discounts, shipping method, delivery date, and any other relevant information.

• Payment Section: Clearly outline the payment terms and conditions. Include information required for payment processing, such as billing address, account number, credit card details, or ACH/wire information.

• Additional Notes: Use this section for any other specific information or instructions relevant to the order. This can include special handling instructions, delivery instructions, or other important details.

How to handle purchase orders effectively in e-commerce stores?

• Customize purchase order numbers depending on your intention

Some online stores have to handle hundreds or thousands of orders each month. So the store owner has to face a significant amount of information about orders. To solve this, for example, Magento merchants can use retail management software to automate purchasing management and store operations. Making the order number purposefully helps to keep track of orders easily and control its status.

Business doers do not have to memorize or look through every single order to search for the information. When there is a certain order that stores need to review or keep track of the order status, they only have to find the code to look for further details of the order.

The number of orders is still minor for newly established stores. This is the reason why they do not want to purchase orders to indicate the number of orders they have in the eyes of their customers. It can cause severe damage to their store turnover.

Exposing the information on their business performance throughout the purchase order number will be risky in your rival’s eyes. They can duplicate your marketing strategy if your business is going well. Vice versa, they will take the opportunity to dominate the market.

Related post: Why online store need Custom Order Number?

• Allow bulk orders

E-commerce stores allow customers to order in bulk. This will help customers, especially for B2B stores, to buy as many products as they want in one order. This helps reduce the number of orders that an online shop has to manage.

If you are using Magento - one of the popular commercial platforms, the Mageplaza Quick Order extension is an effective tool for your store to allow customers to order in bulk.

Quick Order for Magento 2

Simplify and fasten your ordering process to grow your business

Check it out!

• Use a barcode and an advanced shipping notice

The buyers can provide the advanced shipping notice with the barcode labels of each product for all incoming shipments. It will help the seller to identify immediately which products they ordered arrive at the receiving dock by the barcode scanning. It helps to remove products from the dock quickly and eliminate all errors associated with manual receiving.

Using the barcode helps control the stock system easily as shop owners can identify each item and associate it with a valid PO. If you also have the brick-and-mortar store, your staff can check the product’s barcode to know quickly if the specific item is available in the warehouse.

• Set the invoice number to depend on an order number to control easily

Currently, the issue of the order number and invoice number is done on the automatic system. After customers finish their shopping journey in your store, sending them a copy of the purchase order, shipment information, and automatic invoice to their mail is a necessity. An email attached with all the information will help clients know the estimated time of the order, time to pay the order.

Besides, promptly sending documents shows a degree of professionalism that will instill confidence in your customers.

In order to manage the order and invoice numbers easily, the shop owner needs to match the information like setting invoice numbers based on the order number. This will manage the system easily when the customer pays the bill.

Related post: How to Set Invoice Numbers to Depend on Order Numbers in Magento 2?

Conclusion

To sum up, purchase orders are crucially essential for all business operations. It is the contract between the buyer and the seller, which contains important information for both to understand, track, and fulfill the order. With the development of e-commerce today, an increase in online orders is inevitable. Store owners will need to be proactive in managing orders effectively as this directly affects dỉrectly their business results.