Purchase orders allow buyers to clearly communicate their intentions to sellers. They also help purchasing agents manage incoming and pending orders. If no prior contract exists between a buyer and seller, the seller’s acceptance of the order becomes a legally binding contract. Should the buyer refuse to pay for goods or services, this paper trail protects the seller against breach of contract.
Purchase orders actually come in four flavors, each of which differs slightly by how much order info is known at the time the PO is raised. Understanding these differences will save you time, money and possible legal headaches. It will also help your purchasing department run more efficiently by informing the correct method for requesting expenses going forward.
The four types of purchase order are:
1. Standard purchase orders
2. Planned purchase orders
3. Blanket purchase orders
4. Contract purchase orders
1. Standard purchase order (SPO)
As their name suggests, standard purchase orders are the ones you’ll encounter most often. Fortunately, they’re also the easiest to understand. All of the specifics of the standard purchase order are known when it is initiated. SPOs are generally used for one-off requests and made as and when the need arises. An example might be the reordering of office supplies, where the rate of usage and depletion is sporadic or otherwise unknown.
But SPOs also generate a lot of paperwork and admin! Inventory management software like Cin7 exports purchase orders, sales orders, credit notes, stock adjustments, COGS and contacts to QuickBooks Online and Xero, saving time while eliminating human error. From the buyer side, Cin7 makes the purchasing process easier with a built-in B2B eCommerce website that streamlines routine orders and lets customers track purchases and restock from past orders when they run low. It also lets you, the seller, create multiple price lists and promotions for different customer groups.
2. Planned purchase order (PPO)
When you know everything about the order other than its delivery date, raise a planned purchase order. A PPO is a provisional agreement to buy from that particular supplier and sets a tentative delivery schedule based on when you think you’ll need the goods or services in question. As you lock down dates, you’ll release shipments against the PPO, committing to specific delivery dates.
3. Blanket purchase order (BPO)
Blanket purchase orders are used when you know what goods or services you need but are unsure of how much and when. Pricing may not be known either. While somewhat ambiguous, BPOs mean greater flexibility and, most likely, better prices, as they guarantee that you’ll be purchasing from that supplier for a fixed period, under predetermined terms, conditions and spending limits.
4. Contract purchase order (CPO)
Unlike other purchase order types, contract purchase orders establish legally binding terms and conditions for all future transactions—but that’s all. You don’t even need to know what you’re buying yet! Think of it as a purchase agreement that creates a contractual framework within which standard purchase orders can be made. The parties involved may choose to set an expiry date (generally one year).
Still confused? Refer to this handy table!
This content was brought to you by Cin7 inventory management.