How Purchase Orders Benefits Startups

LearnApril 23, 20244 min read
Caroline Lu, Product Marketing Manager

As a startup, you're constantly looking for ways to streamline operations, control costs, and position your business for growth. One often overlooked tool that can provide major benefits is the humble purchase order (PO).

Purchase orders may seem like just another bit of bureaucracy, but they can be impactful in making operations more efficient and protecting your business's finances. Here's how leveraging POs can help your young company succeed:

The Benefits of Using Purchase Orders for Startups

A purchase order (PO) is a critical document in the business world, acting as a legally binding agreement between a buyer and a seller. It outlines the specifics of a transaction, including the goods or services being purchased, their pricing, and other commercial terms. This document serves as a mutual reference point, ensuring clear communication and agreement on all aspects of the transaction.

For startups, purchase orders offer several advantages. They provide formal documentation, facilitate budget control, enable order tracking, aid in inventory management, streamline receiving and invoicing, and hold vendors accountable.

Improve Supplier Relationships

One of the significant benefits of using purchase orders is that they ensure clear communication between buyers and sellers. By documenting the details of the purchase, including the quantity, description, and price of the goods or services, both parties have a clear understanding of what is being purchased. This clarity helps avoid disputes and ensures that the transaction terms are maintained.

Using a structured PO process demonstrates to your suppliers that you're a serious, professional business. This can help you negotiate better terms, secure priority fulfillment, and develop stronger, more collaborative vendor relationships.

Legal Protection

Purchase orders serve as a binding contract that outlines the agreed-upon terms and conditions of the purchase, providing legal protection for both buyers and sellers. This legal protection is especially important for startups as it helps to mitigate risks and protect their interests.

Financial and Spending Control

Using purchase orders allows startups to track their spending and improve their financial management. By using purchase orders, startups can easily track their expenses and compare them to their budget. This practice helps to identify any discrepancies and allows for better financial planning and forecasting.

Purchase orders also help startups control their spending by limiting who can make purchases through purchase order approvals. By requiring the use of purchase orders, you can ensure that all purchases are authorized and within budget. This practice helps to prevent unauthorized spending and promotes financial discipline within the organization.

Supporting Audits and Enhancing Visibility

Purchase orders play a crucial role in supporting audits by providing a detailed record of business transactions and creating a clear audit trail. They provide a record of what was ordered, when it was ordered, and at what price. This allows auditors to verify that transactions were carried out correctly and that the company received the goods or services it paid for.

Purchase orders can help to identify discrepancies or irregularities in a company's financial records. For example, if the amount paid for a particular item does not match the amount listed on the purchase order, this could indicate an error or fraud. By comparing purchase orders with other financial records, finance teams can spot these discrepancies and investigate further. Read our latest blog post on 3-way Purchase Order matching to learn more.

Establish a Scalable Accounts Payable System

As your startup grows, the purchase order workflow can scale with you. The processes and controls you put in place early on will make it easier to manage an increasingly complex procurement function down the line. This helps you avoid the headaches of disorganized purchasing and tracking inventory.

How Settle Can Help

Settle makes it easy to get started on using purchase orders, from creating professional custom POs in minutes to tracking and organizing your POs in one place. You can also automatically 3-way match your POs against your bills and shipping receipts and pay your vendor bills how you want, including same-day ACH, paper checks, international and domestic wire, and for qualifying businesses, through short-term, non-dilutive financing with Settle Working Capital. By taking the busywork out of cash-flow management, Settle allows you to focus on what truly matters - building your tomorrow. So, why wait? Get started for free with unlimited purchase orders.

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