Full Form of PO

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Full Form of PO - Purchase Order

The full form of the acronym PO is Purchase Order. It is a document prepared and sent by the buyer's purchasing department to the seller mentioning the description and quantity. Price agreed upon mutually for the goods or services intended to procure. The purchase or procurement teams use it to place orders with external parties.

Full Form of PO - Purchase Order

Features of PO

Typically, the following details feature a purchase order.

Quantity intended to be procured
Description of product or service
Particular brand names or product code, if required
Per unit price
Desired delivery timeline
Shipping location for delivery
Billing address
Payment and delivery related terms and conditions

Types of PO

There are four types of purchase orders that are normally used.

#1 - Standard Purchase Order

One may make it when all the main terms of purchase are known at the purchase order's time, such as quantity, price, delivery timeline, and payment terms. They are used when there is certainty concerning order and related terms.

#2 - Planned Purchase Order

It is issued when most of the details with respect to the order are known at the time of preparing the purchase order, but precise delivery terms and schedules are not known. Thus, when one makes this PO, a commitment is made for the quantity required and the price to be paid, but only an estimated delivery schedule is mentioned.

#3 - Blanket Purchase Order

Such a PO is made when price and quantity details are also unknown. Only the item details with delivery terms are mentioned. However, it will mention the maximum quantity on the PO, and the buyer can buy within the specified limit. Also, one can mention the estimated price range.

#4 - Contract Purchase Order

In such a PO, the product or service is also unknown. However, one may mention the terms and conditions to be agreed upon with the seller.

How Does PO Work?

Whenever the company has a requirement to procure any goods or services, the buyer raises a PO to the seller. On the PO receipt, the seller confirms to the buyer whether they can complete the said order. If the seller believes it is impossible to complete the order, they will communicate the same, and it will cancel the PO. On the other hand, if the order is sought to complete, arrangements will be made for the same. Upon completion of the order, the seller raises an invoice to the buyer mentioning the relevant PO number to match the same with the actual delivery. After the invoice is raised, payment needs to be done per agreed payment terms.

Example Format of PO

A sample Purchase Order format is produced below.

Difference Between Purchase Order and Invoice

The purchase order is issued for placing an order for goods or services. The buyer issues the same to the seller. It includes the details concerning the order and its delivery. PO constitutes the contract for sale.

The seller issues an invoice to the buyer once the delivery is completed requesting the buyer to pay the final amount. The invoice consists of the price and the final amount payable, payment-related terms, and the credit period allowed to the buyer. An invoice is issued once the delivery of goods or services is completed. As against PO, the invoice confirms the contract of sale.

Importance of PO

A purchase order is a very useful document that is used for placing an order. It helps to communicate the requirements to the seller. When the actual delivery is made, one can cross-check the same with the purchase order to find any variance between the two. Therefore, it is convenient for both the seller and the buyer to keep the order details documented through the purchase order.

Advantages

PO helps the buyer to place an order for the goods and services it intends to procure without making the payment.
It helps to track the orders and avoids duplicity of orders.
It is an important document that forms part of an audit trail.
For a seller, it helps get information about the buyer's requirements.
One can examine actual delivery with a purchase order and question any discrepancy.
PO is a legal document evidencing the terms agreed for purchasing goods or services.

Disadvantages

Even for smaller orders, PO is required to be made, and it seems to be unnecessary paperwork for such small orders.
Generating purchase orders is a time-consuming process.

Conclusion

Purchase orders are being used almost by each business as a part of their procurement process. Therefore, the same is helpful to have clear communication concerning the order that is placed.