You may not think that purchase orders are important to your business, but they are. Having a streamlined purchase order process is vital to a successful ecommerce business. This guide will help beginners learn about purchase orders, and to provide retail veterans some valuable tips to help improve their processes.
What Exactly Are Purchase Orders?
A purchase order (PO) is a document that is sent from a buyer to a supplier requesting an order for merchandise. Typically, the type of item, quantity, and agreed-upon price are included on the PO. The more detailed the PO, the better for reporting.
When a supplier accepts a purchase order from a customer, it creates a legally binding contract between the two. That means that the buyer (you) should make sure that the information on the PO is complete and clear so there is no room for confusion or ambiguity. Because the PO is a legally binding contract, should you refuse the order or not make payment, the supplier is protected.
What Does a Purchase Order Look Like?
Purchase orders are standard documents that contain the following information:
- Buyer’s company information – your company’s name and contact information
- Shipping information – your company’s address or warehouse the merchandise should be delivered to
- Supplier information – name and address of the company you are buying from
- Order information – product name, price, and quantity of each specific item (or group of items) that you are ordering
- Additional information – any other information that is pertinent to your order
How is a Purchase Order Different Than an Invoice?
The basic difference between purchase orders and invoices is who initiates them. As the buyer, you would draft a PO, while the supplier (or seller) prepares invoices that include due dates. Both purchase orders and invoices contain similar details, and the invoice will typically reference the PO number to create a correspondence between the two documents.
Why Are Purchase Orders Important?
Many ecommerce business owners forego using purchase orders for their business because it creates more paperwork that slows down their operations. On the other hand, business owners believe that having established a good relationship with their suppliers is enough to ensure that nothing could go wrong with their orders. However, there is always a chance that mistakes or miscommunications will happen. Utilizing a purchase order process can help online sellers prevent any errors from happening altogether, or at the very least, protect them from possible miscommunications.
How Do You Start Using Purchase Orders?
If you have a fairly new or small ecommerce business and don’t place orders with your suppliers frequently, you may choose to process and track your PO’s manually. However, if you have an established business or you frequently place large orders with your suppliers, then you should consider a purchase order management tool that makes it easy to create, send, and track your PO’s electronically.
Manual Purchase Orders
If you choose to start out with manual purchase orders, you can create your own document or search online for purchase order templates to use, like this one from Shopify. The templates that you find online will typically contain the same or very similar fields for entering information. But, if your products have specific attributes that you need included on your PO’s, you may have to manually add the fields you need.
Once you have your PO template, you can begin using it to request orders from your suppliers. Basically, you send the PO to your supplier and they will use it to fulfill your order and ship it to you. When you receive your order, verify that the information on your original PO matches the information on the invoice from your supplier, and of course, that you received the correct products.
Checking whether your PO and the invoice match is a crucial step. You can tell if there are any discrepancies, especially in situations where the cost of the products you ordered have increased without notification from your supplier. While you may not notice the change in price if you only have the invoice to go by, by also having a PO with the previous pricing on it, you will be aware of it right away. And you will likely be able to pay your supplier the lower price that the PO specifies, because it is a binding contract.
Automating Your Purchase Order System
If you choose to use a purchase order management software, the process is essentially the same as the manual process, but it is all done automatically with just a few clicks. You won’t have to create a PO template; your software will provide one for you. You simply enter the products you want to reorder, choose your supplier or dropshipper, enter shipping details, and submit the PO directly to your supplier via email.
A software solution for your PO process will also automate tracking your merchandise. You will be able to see, at-a-glance, which PO’s have been fulfilled, which you are waiting for, and when you can expect delivery. It’s a much faster process that can be seamlessly integrated with your inventory management software so that your sales channels are always up-to-date on inventory levels. Most solutions will even notify you when your stock levels are low so you can place a new order.
Final Thoughts About Purchase Order Processing
Whether your ecommerce business is big or small, you should be using purchase orders to request products from suppliers. Not only will it help you identify any errors and save you time by streamlining your process, it may save you legally if there are discrepancies.