How to Acknowledge Purchase Order: Steps & Best Practices

In a competitive business landscape, customers value brands that are capable of meeting their expectations consistently. It is crucial to fostering trust, improving brand recall and ensuring repeat sales for any business. However, this capability demands businesses to show commitment to strengthening their upstream supply chain processes. Purchase Order Acknowledgement or POA is the first step among those processes. 

This article discusses PO acknowledgement and its steps as a critical supply chain process and the best practices to implement a consistently fail-safe POA process.

What is a Purchase Order Acknowledgement?

A purchase order acknowledgement is an official communication from a seller to a buyer confirming the receipt and acceptance of an initial purchase order under the specified terms and conditions.  

Any POA is issued only when the seller is capable of meeting the order fully or partially. A fully accepted POA confirms the delivery of goods or services at the ordered quantity and price. In contrast, a partially accepted POA acknowledges delivery but with deviations from the delivery date, order quantity or price mentioned in the initial PO. 

Once issued, a buyer has the right to accept or deny to accept a POA. If a buyer accepts a POA, the seller issues an invoice as a request for payment from the buyer. On the other hand, no invoice is issued if a buyer rejects a POA. Both POA and invoice include information, like product description, quantity, tentative delivery dates and prices. However, they are two different types of formal communication serving different purposes.  

Why is Acknowledging a Purchase Order Important?

Acknowledging a purchase order is crucial for meeting customer’s expectations and ensuring customer satisfaction. 

The primary purposes that a POA serves are:

• Confirming receipt of an order from a buyer 

The first and foremost purpose of communicating a POA is to confirm to a buyer that a seller has received the order. It helps avoid misunderstandings and data errors while ensuring accurate order fulfilment. 

• Expressing a supplier's full or partial agreement to the order 

A purchase order acknowledgement comprises specific details related to items or services ordered, quantities of items ordered, costs per unit of items ordered, delivery dates,  and shipping.   

• Highlighting deviations from an actual order, if any  

Deviations occur when a seller is not in a position to meet the order fully at the buyer-specified quantity, price, delivery timeline or other conditions. A major purpose of POA is to highlight such deviations, if any, to buyers and request their acceptance of such deviations. If a buyer rejects a POA, then the origin order gets cancelled automatically.  

• Creating a legally binding agreement between sellers and buyers 

For a specific transaction, a purchase order acknowledgement also acts as a legally binding obligation on the buyer if a seller accepts the order fully. If a buyer rejects a fully accepted POA, the seller can have the right to take legal steps against the buyer. 

• Aligning customer expectations with delivery limitations 

This improves the visibility of both sides of a purchase transaction regarding tentative delivery timelines, payment terms and other conditions. It helps avoid conflict and resolve challenges. 

How to Acknowledge Purchase Order: The Key Steps

The key steps a seller should take before acknowledging an initial purchase order are: 

1. Verifying the initial purchase order 

This involves going through the buyer's initial PO, checking 

• Items ordered
• Expected delivery timeline
• Expected price
• Other terms and conditions

A lack of thorough verification of the initial order can cause errors in order fulfilment and customer dissatisfaction. 

2. Checking the inventory

Once verified, the seller needs to check the inventory to understand the availability of the items at the expected price point. If the item is not available in stock, the seller might need to source the items. It may cause delays and increase in costs. 

3. Estimating a tentative delivery timeline 

Based on the availability of the ordered items, a seller needs to estimate the best shipping route and a tentative delivery timeline for the initial purchase order. 

4. Specifying the terms of acknowledging the order 

Finally, it is the responsibility of the seller to acknowledge the initial purchase order. As part of the acknowledgement, the seller must convey the intent to fully or partially meet the order and terms of delivery. 

Methods for Acknowledging a Purchase Order

A seller can take any of the following methods to acknowledge an initial purchase order. 

• Email - this is one of the most simple yet modern methods of order acknowledgement. 
• Electronic Data Interchange (EDI) protocol - It involves automated sharing of acknowledgement following the EDI 855 protocol. 
• Purchase order software - This may involve using an organisation-specific purchase order software.  
• Physical document - Instead of digital formats, a seller can choose to send acknowledgement in physical format through courier, postal services, fax, etc. 
• Invoice - Sometimes, sellers may send invoices to acknowledge the initial PO from buyers. 
• Advanced Shipment Notice - ASN is used to inform buyers regarding items in transit. 

Best Practices for PO Acknowledgement

An accurate POA helps sellers to set customer expectations and meet those expectations effectively and consistently. So, it is essential to follow only best practices for acknowledging initial POs. 

1. Acknowledge an initial PO promptly with the least possible delays.  
2. Verify internally regarding quantities, prices and delivery timeline before acknowledging. 
3. A POA must be clear and concise without any opportunities for multiple interpretations.  
4. Inform the reasons behind discrepancies, deviations or inabilities to meet an order fully. 
5. Always mention references to the buyer's initial purchase order. 
6. Mention the contact information for further queries on the POA. 
7. Finally, records of the initial PO and the POA should be maintained for future reference and audits. 

EDI 855 Format in PO Acknowledgment

EDI, or Electronic Data Interchange, is a secure, standardised and automated B2B communication protocol that business applications use to exchange documents electronically. Under the EDI protocol, different formats exist for exchanging different types of business documents. For example, EDI 855 is the format that sellers follow to acknowledge initial purchase orders from buyers in EDI 850 format. Both EDI 855 and EDI 850 follow an x12 messaging format as standardised by the American National Standards Institute (ANSI).