A Customer Purchased Products From Your Company, What Is Post Purchase Marketing

Purchase orders help organizations regain control of its spending, streamline the process of acquiring goods and services, and create a proactive spend culture the contributes to a healthy bottom line. Here’s everything you need to know.

You are watching: A customer purchased products from your company

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Kenneth Loi

Using purchase orders can help an organization regain control of its spending, streamline the process of acquiring goods and services, and create a proactive spend culture that improves the bottom line.

An efficient purchase order (PO) system also allows team members (like finance teams) to keep tabs on pending and future purchases before any additional money is committed.

In this brianowens.tv, we explain what purchase orders are, how they work, and how to create an efficient PO system that works perfectly for your needs.

Table of Contents

How do Purchase Orders Work?What Do Purchase Orders Look Like?

What is a purchase order?

It seems logical to start this guide off by answering a simple question: what is a purchase order? Here’s what you need to know:

DefinitionPurchase orders (POs) are documents sent from a buyer to a supplier with a request for an order. Each PO will outline the specifics of a purchase request, including an order description, quantity of items, and the agreed-upon price and payment terms. They also identify the purchase order (PO) number.

When a seller – like a supplier or a vendor – accepts a purchase order, a legally-binding contract is formed between the two parties. 

Although purchase orders add a few extra steps to the purchasing process, they help to ensure a smooth transaction between the buyer and the seller. They also help reduce the risk of fulfilling an incomplete or incorrect order. In short, these documents are an opportunity for the buyer to clearly and explicitly communicate their request to the seller.

On top of this, if the buyer refuses payment upon delivery of a good or service, the seller is protected because the purchase order acts as a binding contract between both parties.

Lastly, some commercial lenders will use purchase orders as a reference to provide financial assistance to an organization.

How do purchase orders work?

In order to streamline the purchase of goods and services that an organization requires to operate successfully, a purchase order must follow a strict step-by-step procedure known as the purchase order process.

In this section, we’ll explain who and what is involved in this process within an organization.

Understanding the steps in the purchase order process

The purchase order process is the journey a PO takes from creation through to closure and everything in between. Depending on the nature of a company (size, industry, human resources, organizational structure, the goods and services it is acquiring, etc), the purchase order process can also be modified to include additional necessary steps like quality checks, budget approval, contractual approval, and more.

Here are the steps in the purchase order process: 

Create a POApprove a POSend a PO to the vendorPO Received (Binding Contract)Receipt of Goods or ServicesInvoicing3-Way MatchingAuthorize and Arrange PaymentPO Closure

Let’s break these steps down in detail.

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1. PO creation

When a company (i.e. the buyer) decides to buy a product or service, it creates a purchase order that details what is being requested from the seller, along with pricing and payment terms.

2. PO approval

Before a PO can be sent, it needs to be approved. A company’s approval process will dictate who, within the company, is required to approve a PO before it is sent to the supplier.Modern companies tend to facilitate this step by requiring (and approving) purchase requisition first. This process eliminates the need for PO approval, and streamlines the process for the purchasing team.

3. PO sent to a vendor

Once approved, the PO is sent to the seller. For software companies that buy online, this step might seem redundant. However, POs also serves as an internal document that streamlines reconciliation for the accounting team once the invoice is received. So while it isn’t mandatory to send the PO to the vendor, it’s still good practice to keep it for internal purposes.

4. PO received

The vendor/seller receives the order. Once the vendor tells the company that it can fill the order, the purchase order becomes a binding contract. E-procurement tools like brianowens.tv offer to send POs through an online procurement system, which makes it easier to track that emails with POs were both sent by the company and received by the vendor.

5. Receipt of goods or services

The seller ships the order, attaching the PO number to the packing list. This helps the buyer know which order has arrived.

6. Invoicing

The seller also invoices for the order, making sure to include the PO number to the invoice.

7. Three-way matching

The company uses 3-way matching to confirm that the PO number and order details (quantities and prices of the goods and services ordered) match up on the Purchase Order, Invoice, and Packing Slip.

8. Authorize and arrange payment

Provided everything checks out and the company is happy with the order, the company approves the invoice and arranges payment to the seller (as per the agreed-upon payment terms).

9. Purchase order closure

When the above steps are completed, mark the PO as closed.

Who issues a purchase order?

The buyer is responsible for creating and issuing a purchase order. In larger companies, a procurement or purchasing department will typically issue the purchase order. In smaller companies, the business owner, operations manager, or financial manager may issue the purchase order.

It’s also important to note that the role of creating and issuing a purchase order can be designated to a central purchaser for a specific team. For example, in a software company, an office manager can create purchase orders.

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Ultimately, who issues the purchase order comes down to how a company decides to set up its purchasing process.

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