In buying and selling transactions, it is not uncommon for us to encounter the term PO or Purchase Order, which is one of the important documents for business actors.
Because from this document, business actors can better and easily manage inventory and procurement activities.
Through PO, the company orders various items needed from suppliers or sellers. Besides that, there are also many more functions of this PO.
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The definition of a Purchase Order is
The term PO, which stands for Purchase Order, is an important and official document made by the buyer in a transaction.
Where the contents of the document is a list of items needed or to be purchased by the buyer.
Meanwhile for the seller, this document is proof of the contract for the sale and purchase transaction they are doing.
Because the goods will be sent to the buyer once the PO has been received by the seller. The buyer receives the ordered goods or services before receiving the invoice.
That’s why the Purchase Order is an important document for sellers as well. Because it can be authentic proof of transactions for billing and avoiding losses.
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Functions of a Purchase Order (PO)
The use of PO or Purchase Order is indeed more common in large-scale businesses.
This is because most medium-sized businesses, especially small ones, think that the use of POs makes company financial transactions slower and more complicated.
In fact, for both sellers and buyers, PO provides many benefits, especially in avoiding losses.
Especially if transactions are carried out regularly and in the long term. Meanwhile, every business definitely wants to be able to grow.
The more a business develops, the more detailed records are needed regarding transactions, inventory and so on.
Tools are also needed to support the increasing record capacity, for example, such as using accounting software.
Purchase Order is one of the important things that must be in it with various functions.
The Purchase Order functions include:
1. Prevent Double Orders
The first function of a Purchase Order is to prevent double orders from occurring.
PO is generally used in retail businesses that consist of many products. Fill in the detailed PO, making it easier for you to check orders.
That way, it is less likely that one item will be reordered or double ordered as we have stated.
Double orders can occur on one PO or on POs from different suppliers. But with regular and correct recording, of course this can be avoided.
2. Minimizing Order and Delivery Errors
The second function is to minimize the risk of wrong message or wrong delivery. This of course could happen due to the negligence of the seller or the buyer.
But with a PO, the seller can double-check the ordered items before they are sent.
Likewise with the buyer. Before sending a PO to the seller, they can double-check the items ordered.
Without a PO, can you imagine how complicated the claim process would be when an incorrect delivery or order occurred.
Because there is no authentic proof of the transaction. So, the existence of this Purchase Order is very important.
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3. As Proof of Transactions and Data Information
The third or final function of a PO is as proof of transaction and source of information.
With a PO, the seller can send an invoice to the buyer according to the time agreed at the beginning. If you use an online invoice , it can be sent online via e-mail.
The PO will state the time of order, time of arrival of the goods, quantity, type and value of the goods ordered by the buyer to then be billed in the form of an invoice.
For the buyer, PO can be a source of data information for recording inventory, stock items, as well as expenses and data related to the type of goods, these things are crucial for stock taking .
Through this information, it will be easier for the buyer to make books relating to financial flows and even strategies so that the business can grow.
From this, we can also conclude that a Purchase Order is an important document that can avoid disputes between buyers and sellers.
Because a PO or Purchase Order is an important official document, it can even be used as proof of a contract between the seller and the buyer.
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Important Things to Pay Attention to in Making a Purchase Order
In some small and medium scale businesses that understand the importance of POs, outsmart them by making manual POs.
Actually it doesn’t matter as long as the PO manual can be stored properly to be used as a business archive so that it can function as it should.
But often, POs that are made manually have a greater risk of being damaged or lost.
Even manual POs are also considered ineffective because one transaction can require a lot of paper for detailed records.
Therefore, now more and more business actors are using digital Purchase Orders (PO), such as those that have been integrated into financial reporting applications .
Where the Purchase Order or PO uses an integrated cloud system.
Besides being more effective and practical to use, it is also safer to use as an archive or transaction documentation.
Now you can easily get an example of an item PO letter in the form of a template on the internet.
Everything can make it easier for your buying and selling activities as well as financial bookkeeping activities, inventory stock and business inventory.
However, if you want to create your own Purchase Order format, then there are several important points that must be considered and not missed.
The important points that must be included in the Purchase Order include:
- Clearly state the name of the company as the buyer or seller or supplier
- Detailed information of buyers and sellers, such as office address, telephone number and email
- Include the PO number and the date the Purchase Order (PO) was made
- The delivery address for the ordered goods and also the billing address for the ordered goods
- Submitting a request for a payment method (time due for payment agreed by the buyer)
- Clearly state the name of the goods ordered, their type, quantity and unit price as well as the total
- Agreement regarding the terms of the transaction agreed upon by both parties, namely the seller and the buyer (if necessary)
Always double-check the contents of the PO regarding the name, type of goods ordered, as well as the amount and method of payment before the PO is sent to the supplier/seller.
Make orders as needed based on market analysis and also consumer demand. That way there will be no problems when it’s time to pay the bills.
Every business actor should understand the importance of Purchase Orders in buying and selling transactions. In addition to avoiding disputes, it also facilitates management.
To be able to develop a business, detailed and complete records and bookkeeping are also needed.
A Purchase Order is an important document that helps you prepare your bookkeeping and business records.
So, if you haven’t used Purchase Orders or POs in trading transactions with suppliers, then it’s time to start using them.
Apart from minimizing errors, it also gives you proof of transactions made.
From Purchase Orders, it also makes it easier for you to manage inventory, stock of goods as well as the company’s financial flow more precisely.