Purchase Order or PO, as the name itself suggests, is a formal intent by the buyer to the seller for the purpose of procurement of goods and services. It is not a legal contract but serves as a commercially binding document between the two parties.
A purchase order usually has following fields:
- Name of Issuing entity: It clearly mentions the name of the issuing entity i.e Buyer
- Address of Issuing entity: The address of the buyer is also mentioned in the purchase order
- Item description: Description of the goods to be purchased must be mentioned in this document
- Item quantity: Quantity of each category of goods required should also be mentioned here
- Item per unit rate: Rate at which goods are intended to be purchased must be mentioned in the document
- Ship to Location: This contains the address of the place where such goods should be delivered
- Payment Terms: Purchase order specifies the time and mode of making payment
- Other details: It also clearly specifies the details regarding Delivery Terms, Purchase Order Sequence Number, PO Date, Name of Seller entity, Address of Seller entity, Signature of Issuing designated authority, PO Validity Period and Tax Details (PAN Number, GSTID)
A purchase order provides clear and detailed written information regarding the goods/services required by the buyer to avoid any chances of error in the supply. Upon issuance of the purchase order, the same needs to be accepted by the seller. When the goods are ready to be dispatched, the seller issues the sales invoice to the buyer. Both the purchase order and the invoice contains almost similar details. The buyer makes the payment for the goods as per the payment terms mentioned in the purchase order.