In the complex world of perishable business operations, the purchase order (PO) process is the unsung hero that keeps everything organized. If the purchase order is done in an efficient manner, your perishable exports won’t stop growing. The lack of a standardized PO can cause your business to risk wasting time and resources and eventually result in its downfall.
What is purchase order?
Purchase Order Meaning: A legal document that is prepared by the buyer to authorize a purchase transaction. This document is sent by a business to a supplier or vendor, including the details of the perishable goods, the quantity, and the cost. It serves as an agreement accepted by the buyer while purchasing perishable goods from the seller. Purchase orders benefit both parties as they specify the type of goods needed to be delivered on the mentioned timeline. This streamlines vendor management and maintains a record of the financial transactions to strengthen the business.
How does a purchase order function?
Purchase orders can serve as a legally binding agreement. If you want to create a purchase order, you must have an understanding of the PO. A business can use a purchase order strategy to create and handle purchase orders easily.
The steps involved in the purchase order process are as follows:
- Buyers order perishable goods from the sellers: Before placing an order for perishable goods, the buyer must determine the product requirements that the seller's company can fulfill. This process helps identify the specific products needed, the quantity required, and the time deadline.
- The buyer prepares the PO and submits it to the seller for approval: After the order is created by the buyer, the next step is to secure approval for the purchase request. The process of approval can vary based on the company's procedures. The approval can be conveyed by email or verbally. In some cases, you might be asked to fulfill basic paperwork formalities. The level of approval involves a few factors, such as the purchase amount, company policies, and supplier requirements. Approvals can also require verifying the budget or reviewing additional documentation like product specifications or detailed statements of work (SOW). Once the request is approved, it turns into a purchase order (PO).
- The seller examines the PO and decides whether to confirm or decline the request: After receiving the PO, the seller will go through the request and check product availability or inventory to confirm if the order can be fulfilled within the mentioned time. The seller, after examining inventory and shipping capacity, will either confirm that they can go ahead with the order or reject it if required for factors such as inadequate inventory.
- Your PO is accepted: The seller will approve the buyer's purchase order if the instructions are followed as per the seller's instructions. After the bid is accepted, the buyer and the seller must conclude a contract. The contract usually outlines the purchase terms, including support services, delivery schedules, and the way to resolve disputes.
- Delivery of the perishable goods: The seller will deliver the goods upon approval of the purchase order (PO). In this case, the seller can create or send an invoice to the buyer to specify the cost of the PO. The invoice received from the buyer will include details of the perishable goods, the amount due, the quantity of the goods, and payment terms.
- Payment of the invoice: After receiving the goods, the buyer will examine and record them with a Goods Received Note and then pay the invoice as instructed by the seller.
What are the various types of purchase orders?
In a procurement process, the POs are categorized as follows:
- Standard Purchase Order: This is the most used PO. It includes information about the goods or services being purchased, their quantity, and their cost.
- Blanket Purchase Order: This PO is used for repeated purchases and forms an agreement with a definite time period and fixed payment terms.
- Planned Purchase Orders: The planned PO indicates a company's initial order with the intention of buying particular perishable commodities; however, the amount and delivery schedule are not confirmed.
- Emergency Purchase Order: This purchase order (PO) is employed in emergency situations, allowing for expedited acquisition without following the usual approval processes.
- Single-Source Purchase Order: This purchase order, which is directed towards a certain supplier, specifies the intent to acquire perishable products or services from them only.
- Direct Purchase Order: The direct PO refers to the perishable goods bought from the suppliers without involving any negotiating parties.
- Indirect Purchase Order: This PO is involved with non-production-related items such as maintenance, services, or equipment for the company.
What is included in the purchase order format?
Based on the intricacy of the transaction, industry standards, and organizational preferences, the purchase order format can vary. The important details needed for the transaction are as follows:
- Information of the Header: It provides the details of the company, the buyer's and supplier’s names, addresses, contact details, and date of issuance.
- Number of the Purchase Order: A unique PO identification number is allotted for monitoring and reference purposes.
- Details of an Order: This list mentions the products or services being purchased, which includes descriptions, quantities, amounts, and unit costs.
- Delivery Details: The shipment location, the intended delivery date, and other relevant information related to the delivery.
- Terms of Payment: An agreement made on the condition of the payment, including due dates, currency, or any applicable discounts or fines.
- Billing Details: If the billing address is different, the supplier should send the mail invoice to the billing address.
- Added Terms and Conditions: Any particular rules, restrictions, or legal laws that are relevant to the transaction.
- Legal Signatures: A space for the authorized representatives of the supplier and the buyer to sign to make sure that they agree to the terms.
- Attached Documents: supporting records that provide the order with more context, such as product specifications, drawings, or contracts.
What are the benefits involved in the purchase order (PO)?
A constant, repetitive PO process offers various benefits to improve visibility, control, and efficiency. Some of the benefits of PO include:
Budget: A repeated PO enables you to evaluate your accounts correctly for all the relevant purchases and maintains a stable budget.
Manage the Order : An established PO process handles multiple orders at a time, also tracks shipments and receipts, manages inventory, and schedules production.
Financial Responsibility : A strong PO process maintains a record of cash flows and costs, which is regarded as a valuable asset for banks, auditors, and legal departments.
Resolve Disputes : In the PO process, preparing a legal contract between your business and your suppliers aids in defining roles and sorting out conflicts. It clearly outlines warranties, guarantees, and terms and conditions.
Some of the best practices to optimize the purchase order (PO) process are as follows:
- Examine and evaluate your current PO.
- Identify goal-oriented results.
- Prepare written rules that are available to all parties involved in the PO process.
- Make a list of your favorite suppliers.
- Create groups for expenses and budgetary allowances.
- Appoint a process manager who is an internal stakeholder.
- Use means of technology.
PO tracking can be done through emails and spreadsheets or by using dedicated software. Using software to manage and simplify your PO process is an easy way to save money and time.
The main benefits of automating your purchase order process are as follows:
- Reduced Repetition
- Increase Transparency
- Control Expenses
- Centralized and Visual Data
Conclusion
In conclusion, a purchase order (PO) stands as a foundation in the procurement process, serving as a formal request for your perishable goods or services. It maintains clarity between buyers and suppliers by detailing specific requirements, prices, and terms. By following an efficient PO process, businesses can efficiently manage orders, enhance transparency, protect against discrepancies leading to easy transactions, and establish bonding between buyer and supplier.
With Citrus Freight , you can easily manage all your purchase orders from a single dashboard without any manual effort. It facilitates financial record-keeping, provides easy status updates, reduces miscommunication and missed orders, and ensures timely delivery of goods.
