Made as a request from a buyer to a seller, a PO (Purchase Order) details what goods or services are being purchased. Buyers send purchase orders to the seller as an intent to make a purchase in the near future. Additional details included are the price of items, expected delivery schedule and payment terms. As a form of a binding contract, purchase orders protect both the buyer and the seller by making the details of the arrangement clear.
For a wholesale distributor, you will likely issue purchase orders to stock your own goods. Since you'll also be likely to receive them, we've outlined the four types of purchase orders so that you know how to deal with them in either scenario.
4 Types of Purchase Orders
Depending on how much information the buyer can share regarding their upcoming purchase, there are 4 varieties of purchase orders.
Standard Purchase Order
The most widely used of purchase orders, the standard purchase order details the items to be purchased, quantities, payment terms and the delivery date. Standard purchase orders are typically used for one-time purchases. An example of a standard purchase order would be when a company agrees to buy 10 reams of paper for the price of $2 each, which will be delivered within two weeks and paid within 30 days upon delivery.
Blanket Purchase Order
A blanket purchase order incorporates several potential orders into one. This type of purchase order typically outlines the items and total quantity needed. It may or may not include pricing. If it does include pricing, it may include price breaks that the seller is willing to offer. For example, a company may decide to order reams of copy paper, but they're not sure when or how often they'll need to order. In this instance, the company may issue a blanket purchase order to initiate the purchasing process.
Contract Purchase Order
With a contract purchase order, the buyer does not know which item or items will be ordered. Instead, you agree upon terms and conditions with your supplier with the idea that items and quantities will be known in the future. This type of purchase order acts more like a binding agreement that the seller will purchase from you in the future. Often set for a year as the time period, contract purchase orders essentially act like a legal document. During the contract period, the buyer can send in a standard purchase order that includes the details needed for each purchase.
Planned Purchase Order
For a planned purchase order, most order details are known. Known items may include the items, pricing and payment terms. However, the delivery date is typically unknown. Essentially, the buyer is committing to a price and quantity, but not on a delivery schedule. As an example, a company may know that they are going to purchase three printers at a certain price. Once the needed delivery schedule is known, you can generate a standard purchase order.
No matter which type of purchase order you use, be sure to be clear and concise with order details. This important type of arrangement not only protects the buyer, but the seller. So, if you're not using purchase orders, now is the time to get started.
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Categories: Wholesale Distribution