The Purchase Order Journey: What are the steps of a PO?

LearnApril 22, 20245 min read
Caroline Lu, Product Marketing Manager

What is a Purchase Order?

Before we go into what are the steps of a purchase order and how to create one, we need to define what it is. A purchase order (PO) is a legally binding document that a buyer issues to a seller. It serves as a contract between the two parties, detailing the specifics of the order, including the types and quantities of products, payment terms, and delivery details. This document provides the seller with a guarantee against non-payment and allows the buyer to monitor inventory and purchase history.

The steps of a Purchase Order

The process of creating and implementing a purchase order involves several stages. It begins with a requisition that needs approval, leading to the creation of a purchase order, before ultimately receiving the goods and paying for them. The process includes several steps from requisition and PO creation to approval, fulfillment/shipment, receipt, and invoicing.

The steps for a purchase order are as follows:

  1. Identify Need: The first step in the purchase order process is identifying the need for a product or service. This could be triggered by a low inventory level, customer demand, or a strategic business decision.
  2. Select Vendor: Once the need is identified, the next step is to select a vendor. This could be a vendor that the company has an existing relationship with, or a new vendor that offers a better price or quality. The selection process should consider factors such as price, quality, delivery time, and vendor reputation.
  3. Submit Purchase Requisition: Depending on how sophisticated a business's procurement process is, a purchase requisition is required before a purchase order is created. In this case, the requestor of the goods or service submits a purchase requisition, which is an internal document that outlines the details of the needed item, including the quantity, description, estimated cost, and delivery timeline.
  4. Approve Purchase Requisition: The purchase requisition is reviewed and approved by the appropriate personnel, such as a manager, purchasing agent, or operations lead to ensure it aligns with the organization's policies and budgets.
  5. Create Purchase Order: After a requisition is approved, a purchase order is created. This document should include details such as the type and quantity of the product or service, the agreed price, the delivery date, and the payment terms. The purchase order should be reviewed and approved by the appropriate personnel within the company.
  6. Send Purchase Order: Once the purchase order is approved, it is sent to the vendor. This can be done via email, fax, or a dedicated procurement software. The vendor then reviews the purchase order and, if they agree with the terms, they accept it.
  7. Delivery and Inspection: After the vendor accepts the purchase order, they deliver the product or service. Upon delivery, the company should inspect the goods or services to ensure they match the specifications in the purchase order. Oftentimes, the goods will come with a document called a shipping receipt, bill of lading (BOL), or goods received note (GRN), which should be checked against the purchase order to ensure the goods received match the order.
  8. Invoice Processing and Payment: After the goods or services are received and approved, the vendor sends an invoice or bill to the company. The company then processes the bill and makes the payment according to the terms agreed in the purchase order. Teams can verify if the invoices and receipts match the purchase order through 3-Way Matching.
  9. Recordkeeping: The purchase order, receiving documentation, and payment information are maintained as part of the organization's records.

How to create a Purchase Order

Creating a purchase order can be done in several ways. Business owners can use online software specifically designed for this purpose or create their own order forms using simple Word or Excel documents. Purchase Order software like Settle can expedite the purchasing process by automating the purchase order creation process, reducing errors and accelerating the process. Many procurement software tools like Settle commonly integrate with accounting systems. Regardless of the method chosen, a purchase order should include:

  • Issue date
  • Required products and their quantities
  • Product details (SKU numbers, model numbers, brand names)
  • Price per unit
  • Delivery date
  • Purchase order number
  • Business information (shipping and billing address, company name, contact information)
  • Payment terms

Create a Purchase Order in under 6 minutes with Settle*

Settle can help automate your purchase order process by helping you create, send, 3-way match, and organize your POs in one place. From creating a PO to paying for it, we can handle your inventory procurement needs from start to finish. Instead of creating POs from scratch and manually filling out the details, you can auto-fill them with items already saved in your catalog. Plus, you can customize your POs with property templates (such as size, color, etc.) and add your business logo. You can also send your POs to your vendors straight from Settle, track the status of your POs, and 3-way match your bills and goods received notes (GRNs) against your POs automatically. Take a self-guided tour of Settle's Purchase Orders or get started for free with unlimited purchase orders.

*The statistics presented are based on available data obtained from Settle's internal quality assurance procedures and testing protocols. They are for informational purposes only. Settle makes no representation or warranties, expressed or implied, with respect to this information. For more information on our data sources and methodology please contact our customer support team.
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