Before finding what are the various types of Purchase Orders, let’s first understand what exactly is a purchase order.
What Is a Purchase Order?
A purchase order is a binding contract that outlines the exact details of an agreement, between a business and its vendors. The documents are essential for any business looking to buy goods from its suppliers or create custom orders with their respective manufacturers; it specifies details about what goods are being purchased, how many items need to be delivered before payment can happen, and when they should arrive in the possession of the said business
Purchase orders can be a hassle, but they help prevent incomplete or incorrect order fulfillment and protect both the seller and the buyer. Additionally, commercial lenders use purchase orders as a reference to provide financial assistance to a business.
Vendors are required to “accept” orders by telling the buyer that they can fulfill them on time or they can also reject an order if they don’t accept a Request for Quotation.
A purchase order typically includes the following information:
- Item(s) to be purchased
- Quantity
- The agreed price of goods
- Delivery schedule (date and location)
- Name and billing address of the buyer
- Name and payment receipt address of the seller
- Terms of agreement
- Purchase order reference number
- Date of issue
Benefits Of a Purchase Order
A purchase order brings in several benefits to a business; some of the crucial ones include:
- Removes duplication of orders
- Helps to track incoming orders
- Serves as a legal document between the purchaser and the suppliers
Difference Between PO & Invoice
Buyers create a Purchase Order (PO) and send them to vendors. In turn, this prompts the vendor to accept the PO and return an invoice with payment information for goods or services provided.
The two documents typically contain similar details – they have matching numbers such as PO numbers along with their respective invoice number to confirm that both are identical copies of each other.
Let’s find out what are the different types of purchase orders.
Types Of Purchase Orders
1. Standard Purchase Order
Standard purchase orders are the most used type of PO and the easiest to understand. The use for a standard PO often falls under the need for sporadic purchases, one-off orders with specific requirements. Despite this flexibility, Standard POs are always more detailed than other types, making them ideal when businesses want certainty over absolutely everything that will be bought from a supplier. A standard purchase order mostly includes the following details:
- Terms and conditions of the order
- The list of which items will be purchased
- The quantity of each item
- The price of each item
- The delivery date for each item
- The delivery location for each item
2. Planned Purchase Order
Planned purchase order (PPO) differs from a standard PO in that delivery information is omitted. Thus the delivery date and location for each item are not included when creating one of these documents, but all other details like what items will be purchased, the number of units of a product to be purchased, and also the price at which it’ll be purchased can be committed to the buyer.
There are times where PPOs have unconfirmed tentative schedules, but it’s important to always check with a release before confirming the order. Planned purchase order includes:
- Terms and conditions of the order
- The list of which items will be purchased
- The quantity of each item
- The price of each item
- The unconfirmed, tentative delivery date for each item
- The unconfirmed, tentative delivery location for each item
3. Blanket Purchase Order
Blanket purchase order, or “standing order”, is a type of purchasing arrangement that can be helpful for businesses with regularly recurring needs. Unlike a PPO, which excludes delivery information and quantity details, the blanket purchase order (BPO) also omits item price. The list of what items will be purchased is still included in a BPO – just without any detail on quantities or prices. This type of arrangement can finally move forward with an accompanying release that includes specific detailed info about deliveries locations and times for each product kind before purchasing anything officially takes place.
In the case of unpredictable purchasing circumstances, a BPO is created to ensure that items are being purchased at an ideal pace. The main inclusions of a blanket purchase order are:
- Terms and conditions of the order
- The list of which items will be purchased
- Discounts on item quantities purchased
- Confirmed pricing details for each item
4. Contract Purchase Order
The function of a contract purchase order (CPO) is exclusive as a set of legally binding reference terms to subsequent POs referencing that CPO will be bound by. In addition, unlike with planned and blanket purchasing where you can list what items are needed in advance, these particulars must remain omitted from any arrangement made under a CPO.
Here, things that are confirmed by both parties are legal terms and conditions surrounding future POs that are raised on this agreement. Some agreements have set time limits for their validity while others will remain in effect indefinitely until otherwise notified between buyer and supplier. CPO include:
Negotiated and confirmed terms and conditions, helping subsequent purchase orders generation
Conclusion
These were the four main types of purchase orders used by businesses every day.
It’s important to learn how and when each type of purchase order is used in business. Using this knowledge helps a company to develop good relationships with suppliers, inevitably affecting their future success.
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