Ultimate Guide To Creating A Purchase Order

  • By ProcureDesk

  • 10 min read

Purchase orders are a critical aspect of the success of your business.

According to a study by Jessie Hagen of U.S. Bank cited on Score.org, 82% of businesses fail due to poor cash flow management.

The thing is- effectively managing your purchase orders has a deep correlation when it comes to budgeting your spending.

To manage your cash flow better, you need to know how to leverage the use of your purchase orders.

If you don’t know much about it, you’re in the right place because that’s what this guide is all about- purchase orders!

In this comprehensive guide, we’re going to walk you through “everything” you have to know about purchase orders to help you become a more effective member of your procurement team.

By the end of this guide, we’re confident that you’ll have a full grasp of the following:
1. Definition And Purpose Of Purchase Orders
2. History Of Purchase Orders
3. Types of Purchase Orders: Its Definition, Advantages, and Uses
4. Purchase Order Process
5. Legal Aspects Of Purchase Orders
6. How To Create And Manage Your Purchase Orders Better

Let’s start!



Chapter 1: Introduction to Purchase Orders and Their Role in Business Operations


Chapter 2: History of Purchase Orders


Chapter 3: Types of Purchase Orders


Chapter 4: The Purchase Order Process


Chapter 5: Creating and Managing Purchase Orders (purchase order tracking)


Chapter 6: Legal Aspects of Purchase Orders


Conclusion: The Impact Of Purchase Orders On Procurement And Supply Chain Management



Chapter 1

Introduction to Purchase Orders and Their Role in Business Operations



What Is A Purchase Order?

A purchase order often known as a PO, is a legal document issued by a buyer to a seller.

To manage expectations throughout this guide, let’s agree that

  • YOU are the buyer
  • Your vendors/suppliers will be the seller

Generally speaking, you use purchase orders when your company procures materials for the following reasons:

  • Direct consumption
  • Stock
  • Procure services
  • Fulfill your customer requirements using external sources or
  • To procure materials you need for production

when do you use purchase orders?

You issue a purchase order (PO) to your vendor supplier to clearly lay out what you’re looking for.

The answers to these questions should be clear from the perspective of your seller:

  • What product are you buying?
  • How many pieces are you buying?
  • What’s the price of the product you’re buying?

Purchase orders allow you to communicate what you exactly need from your sellers openly.

Aside from keeping things transparent, this document can also serve as a buying agreement between you and your seller.

We’ll discuss more about this topic in the next sections.

The point is, that purchase orders help you express:

“This is what I want to buy.”

And you’re sellers can say

“Got it. I understand what you want to buy from me.”

purchase orders


Why Is A Purchase Order Important In A Business Operation?

To you, a purchase order might just be a regular piece of documentation to complete a transaction between you and your sellers. But it’s so much more!

Purchase orders play a crucial role in streamlining your business operations. Let’s talk about it.

1. Fulfilling Your Orders
As you already know, a purchase order serves as a documented purchase of goods or services you need from a seller.

Your seller needs the complete information on the product/service that you need such as its quantity, and the date you need it to be delivered.

That’s if, you want your seller to fulfill your order right away!


2. Control Your Purchasing
Did you know that purchase orders can also help you control the products and services you get from external suppliers?

Since you would need to specify the exact number of products you need, it becomes easier to manage your inventory levels.

Your procurement team will have a better understanding of your incoming orders vs pending orders. You wouldn’t even need to worry about over-ordering or under-ordering!


3. Avoids Duplication Of Orders
When you’re in the middle of scaling your business, it’s easy to focus on the bigger picture and miss out on little mistakes such as double orders.

Purchasing Orders can help avoid that. POs can serve as a tracker, so you can see what you’ve ordered and from whom.


4. Simplifies Your Inventory And Shipping Process
Can you guess what happens when your team can flawlessly keep track of all your incoming orders?

You get a well-organized purchase order system! As a result, your company can manage your inventory better.


5. Provides Clarity
As mentioned, purchase orders do not serve as a legal contract.

But since it allows you to give clear and concrete instructions to your sellers, it serves as a reliable paper trail you can easily turn to in case of future disputes.

We’re all for a positive turnout of your transactions with your sellers.

But JUST in case something goes wrong, you can turn to your purchase orders for reference.

Previously, we’ve spoken to some of our clients and they said a common issue is when they receive an order that doesn’t match the desired specifications that were included in the purchase order.

According to a study from Harvard Business Review, failed deliveries and issues can cost companies billions of dollars each year, and even damage the seller’s reputation.

So P.S. — If you’re a vendor/supplier reading this, we highly suggest that you step up!

Chapter 2

History Of Purchase Orders

Let’s go back in time and analyze the history of purchase orders.

It’s important to note that the history of purchase orders is inseparable from the history of purchasing in general. That’s why in this section, we would be covering the history of procurement in a general sense as well.


Evolution Of Purchase Orders

Did you know that to look back at the history of procurement, you would need to push back to at least 3,000 B.C?

This was around the same time when Egyptians started to build pyramids.

Since then, the concept of purchasing never left. It stretched out up to the Roman Empire and began its development in the 19th century.

Evolution of Procurement

There is even early evidence of the purchasing practices, which can be traced back to a book published by Charles Babbage in 1832 where he highlighted the importance of purchasing.

He coined a term called “material man” who was responsible for selecting and procuring the important materials needed by early business.

Are you curious when the actual use of purchase orders began?

It was because of the textile industry.

Selling agents would be responsible for handling and influencing the quality of products by using high-quality cotton to produce materials.

They would use purchase orders to specify the type of cotton that they want, so they can order it and use it to produce textile products.

The only problem was – it was a bit difficult to create, manage, and keep up with purchase orders. The process was TOO tedious since it was paper-based.


Development Of Purchase Orders

As purchasing fundamentals evolved in the 20th century, businesses began focusing on qualifying purchasing personnel and standardizing procedures to streamline procurement.

At the start of the 20th century, when a merchant needed to restock, they would fill out a paper order form or contact the purchasing department by phone.

The purchasing department would then generate a paper purchase order form for their vendor, typically using a typewriter or writing by hand.

This process required creating three copies of the order form: one for the vendor to accompany payment, another to go with the sales order and invoice, and a third for the customer.

If typewriters were unavailable, creating three carbon copies by hand could be laborious and strain the hand.

Purchasing was also very important during World War I and World War II as raw materials continued to be in high demand. This happened simultaneously as the National Association of Purchasing Agents’ membership continued to expand.

Purchasing during the World War was done as a clerical function which usually involved buying raw materials, commodities, and supplies for organizations and businesses alike.

Although there was a post-war decline, the rise of procurement quickly rose again by the 1960s.

Procurement continued to gain traction even in the 1970s but was still considered a clerical task.

It was not until the 2000’s where procurement began to be a strategic function.

No doubt, purchasing, and purchase orders have taken its time to evolve and transform over the years.

If purchase orders used to be manual, time-consuming, and mostly paper-based; it’s now going digital.

This allows better real-time tracking, automated approvals, and even more seamless communication with suppliers. In the next sections, we will further discuss the technological advancements of purchase orders and their impact on today’s businesses.

But for starters, it’s safe to say that the evolution of purchase orders made the procurement process more efficient and accurate.

The more it progresses, the less you have to worry about little risks and errors. Thanks to electronic purchase orders, the process of verification and validation of information is even quicker.

Chapter 3

Types Of Purchase Orders

In this chapter, we’re going to cover the anatomy of a purchase order, its types, and its correct usage.

To fully master purchase orders, it’s important to note its elements. Aside from that, understand the differences between purchase order types and how to use them effectively.


Key Components Of A Purchase Order

A purchase order includes essential elements to ensure you have all the necessary information as a buyer and easily communicate your requirements to your sellers.

Here’s a list of the key components of a purchase order. Feel free to use this as a form of checklist to make sure your purchase order has all the information you need!

  1. Purchase Order Number: Purchase order numbers are unique numbers assigned to the purchase order. This makes it track orders easily, especially at a later stage.
    • Example: Imagine you’re placing an order for custom-designed t-shirts for an event. Your purchase order number might be “PO12345,” allowing you to easily track this specific order
  2. SKU: Also known as a Stock Keeping Unit, refers to a unique number for orders that involve raw materials. This identification code makes it easy to track products and sales, and may also include other details like size or color.
    • Example: SKU: For your t-shirts, the unique Stock Keeping Unit (SKU) might be “TSH001,” which indicates a specific design and size combination, making it easy to track the product and any variations.
  3. Order Date: Being specific about the date an order was placed makes it easier to track the order and its lead time. This also helps in tracking the supplier performance.
    • Example: You placed the order on May 1, 2024. This data helps you and your supplier monitor the timeline for production and delivery.
  4. Vendor Information: POs should contain the details of your supplier (name, address, and contact information of the supplier.)
    • Example: Your t-shirt supplier is “Custom Creations Inc.” with their address at 123 Supplier Lane, New York, NY 10001. You also include contact information such as the phone number and email address for efficient communication.
  5. Ship-to Information: This refers to the name, address, and contact information of who will receive the products.
    • Example: The t-shirts are to be shipped to your event venue: “Event Center,” 456 Event Way, San Francisco, CA 94105. This information ensures the supplier knows where the order needs to be delivered.
  6. Description of goods/services: Did you know that this is a very important element you should specify in your POs? This communicates to your buyer what you require exactly.
    • Example: The purchase order specifies “500 custom-designed t-shirts” in various sizes and colors, according to the requirements you provided to the supplier.
  7. Quantity: These refer to the number of goods or services you are ordering, to help your supplier understand how much of a particular item you need.
    • Example: You’re ordering 500 t-shirts, broken down into various sizes and colors, to meet your event needs.
  8. Unit price: This refers to the price per unit of goods or services you’re ordering from your suppliers.
    • Example: Each t-shirt costs $15, providing a clear expectation of your per-item expenditure.
  9. Total price: This refers to the total cost of the order, so you can manage expectations regarding your financial obligation for the transaction between you and your supplier. We highly recommend that your POs have a summary, dictating the subtotal, applicable discounts, taxes, shipping, and the grand total for payment.
    • Example: The total cost for 500 t-shirts is calculated at $7,500. The PO includes a summary with subtotal, discounts, taxes, and the grand total for payment.
  10. Payment terms: This refers to the terms you and your suppliers agree upon. This covers when the payment is due, and even penalty terms.
    • Example: You’ve agreed with the supplier to pay 50% upfront and the remaining balance within 30 days of receiving the shipment.
  11. Shipping Instructions: In case you have any specific instructions for delivery, it’s important to cover this in this specific PO key component.
    • Example: You requested expedited shipping to ensure the t-shirts arrive at least one week before the event.
  12. Additional terms and conditions: In case you have any additional terms or conditions that apply to the order, you must always mention them.
    • Example: Any specific requirements, such as printing the event logo on each t-shirt, are outlined here. You also include the terms for returns or exchanges in case of any issues.

With the right PO format, you’re secure that all the information you need to communicate with your suppliers is ready. This helps both parties to stay on the same page with every transaction!

Just in case you’re looking for a sample purchase order to use for starters, you can download our free purchase order template here.


Types Of Purchase Orders

Did you know there are different types of purchase orders in procurement?

You can select the most suitable type based on the specific needs and requirements of the goods and services you’re ordering.

Let’s explore these purchase order types, their advantages, and how to use them effectively.

types of purchase orders


Standard Purchase Orders
Standard Purchase Orders are the easiest to use since you only need a singular basis order.

You use them when you’re clear about all the details of your purchase, what item or service you’re buying, the quantity, delivery date, and payment terms.

They’re best to use for one-time transactions and when you don’t have the intention of entering into a long-term contract with your supplier!

Important key components in this PO include:

  • Delivery date
  • Item quantity
  • List of items you need to purchase
  • Terms and conditions

Example: Imagine you need to order 100 office chairs for your company’s headquarters. You know the exact model, color, and size you want, as well as the date you need them delivered. You issue a Standard Purchase Order to a local furniture supplier detailing your requirements. This type of PO is ideal for this one-time transaction, allowing you to make a clear agreement on the delivery date and payment terms.

standard purchase order


Planned Purchase Orders
Planned Purchase Orders are the PO type you use for long-term contractual obligations. You’ll need them when you order a product/service from your supplier exclusively over time.

Basically, you use this type of PO when you have already estimated the future needs of your company.

That’s exactly why it’s called “planned!”

One unique thing about planned purchase orders is that they have scheduled releases. These scheduled releases initiate an order to buy goods or services that you need from your suppliers.

Important key components in this PO include

  • List of items
  • Estimated quantity
  • Pricing
  • Billing Account
  • Charge Card
  • Credit Card
  • Tentative delivery dates for the product or service you need.
  • Tentative location for delivery
  • Terms and conditions

Example: In the same scenario, suppose you plan to order office chairs in different phases over the next year as your company expands to different locations. You issue a Planned Purchase Order to your chosen supplier, outlining your estimated needs and tentative delivery dates for each phase. This allows you to plan ahead and schedule releases based on your company’s growth.

planned purchase order


Blanket Purchase Orders
A Blanket Purchase Order also known as a “standing order” is a type of PO you use when you want to enter a recurring relationship with your suppliers. This involves consistent future purchases from your vendors.

Compared to a Standard Purchase Order, a Blanket Purchase Order is quite less precise since you’re allowed to request an unspecified amount of a particular good or service from your supplier over time.

The best part about these types of purchase orders is that you can receive quantity discounts from your suppliers, in return for recurring orders.

Important key components in this PO include

  • Terms and conditions
  • Discounts
  • List of items
  • Pricing

Example: Now, let’s say you need office chairs regularly as your company continues to expand. You could set up a Blanket Purchase Order with the supplier for office chairs, agreeing on a range of quantities, colors, and models you might need over time. This recurring arrangement allows you to receive discounts and ensures a steady supply of chairs without the need to renegotiate each time.

Blanket Purchase Order


Contract Purchase Orders
Contract Purchase Orders are also known as contract purchase agreements.

This type of purchase order creates a commercial relationship between you and your sellers and is legally binding for future purchases.

In this type of Purchase Order, you and your sellers sign a contract that outlines the terms of the purchase even before an actual purchase order is made. The legal protection it offers is the thing that sets it apart from the rest of the purchase order types.

It’s best used for long-term business relationships with an ongoing need for a specific good or service.

These types of POs are commonly used for long-term business relationships with an ongoing need for a specific good or service.

Example: For a long-term arrangement with the same furniture supplier, you establish a Contract Purchase Order that details your ongoing need for office chairs over several years. You agree on pricing, terms, and conditions in a legally binding contract that secures your business relationship. This setup helps ensure continuity in supply and pricing stability for the duration of the contract.

Contract Purchase Order


Digital Purchase Order
Digital Purchase Orders refer to electronic purchase orders you create through an automated PO system which is a part of the PO process.

This PO process in place helps your procurement process move more efficiently, making things more beneficial for both buyers and sellers.

To create a digital purchase order, you can use tools like Microsoft Excel or even Open Office. Or, you can download our free purchase order template here.

Fisher purchase order

Chapter 4

The Purchase Order Process

Now that you understand the basics of a purchase order, it’s time you learn about its benefits, advantages, and processes. That’s exactly what you’ll be diving into in this chapter!

By the end of this chapter, you’ll understand the:

  • Benefits & advantages that purchase order brings your company
  • The purchase order process
  • The people involved in the purchase order process

Let’s begin!


What Are The Benefits Of Purchase Orders?

No doubt, purchase orders bring a lot of benefits and advantages to organizations like you. Let’s discuss it one by one.

What Are The Benefits Of Purchase Orders?


It helps you streamline and have control over your inventory
When you understand what you’ve ordered and what’s scheduled for delivery, you begin to have easy control over your inventory.

This helps you prevent doing unnecessary duplicate orders, getting surprised by unexpected invoices, and generally secure a good purchase order management system for your company.

By simply having control over your inventory, you also get a clear view of your inventory status and can quickly predict potential shortages or overages, allowing you to manage your stock more effectively!


It helps you control your budget
Using purchase orders helps you make sure that your company spending matches your budget.

As a result, you become more responsible for allocating funds correctly. Every company has a certain amount of budget to comply with and as part of the procurement team, your job is to comply and not spend outside what’s needed.


It helps you have precise records
Purchase orders help you get enhanced accuracy.

Since purchase orders also serve as a record for inventory transactions, you’re confident that you have tangible proof of what’s been ordered, what’s incoming, and how much was spent for orders, and generally have easy access to inventory insights.


It gives you time savings and better cash flow management

Purchase orders streamline communication with your vendors by establishing clear expectations for your recurring needs.

This minimizes back-and-forth exchanges and creates a more efficient ordering process. As a result, your company can better manage cash flow and strategically plan future purchases to align with your financial goals.


What Is The Purchase Order Process?

Whether you like it or not, the purchase order process is such a crucial element if you want to manage your procurement correctly.

That’s why in this section, we’ll help you understand the purchase order process in a buyer perspective (that’s you!) so you can easily understand the process you need to go through in order to complete an order.

In every step, we’ll also indicate the people involved in the process.

After we walk you through the steps of a purchase order process, we’ll be sharing with you the story of Sarah and how she goes through the purchase order process.

purchase order process


Step 1: Create A Purchase Order Requisition
The purchase order process begins with you identifying what goods or services you need and then proceed with creating a purchase requisition.

This internal document outlines what you need, the quantity, and any special requirements. You will need to create a purchase requisition since it serves as a formal request that needs approval from your management before you can proceed with the purchase.

Participants: Buyers or purchasing agents


Step 2: Create And Approve A Purchase Order
Once your purchase requisition is approved, the next step is to create and approve a purchase order (PO) that details the items or services you plan to purchase.

The PO should include all necessary details such as price, quantity, delivery dates, shipping terms, payment terms, and other relevant conditions. Before the PO can be sent to the supplier, it needs to go through an internal approval process to ensure the purchase is necessary, budgeted, and aligns with organizational policies.

This approval typically involves several stakeholders, including department heads, finance teams, and senior management, with many organizations using procurement software to facilitate digital approvals.

Once approved, the PO is issued to the supplier, which can be done electronically via email, procurement software, or other electronic data interchange (EDI) systems.

Buyers or purchasing agents are primarily responsible for creating the PO, while the approval process involves a broader group of participants to ensure compliance and proper oversight.

Participants: Buyers or purchasing agents


Step 3: Acknowledgement Of Purchase Order By Seller
Once you’re done creating the purchase order, you can now send it to your supplier. Your supplier will review it. Once approved, your purchase order will serve as the agreed terms and conditions of the transaction between you (buyer) and your suppliers (seller).

Participants: Suppliers and vendors


Step 4: Seller Ships Product and Issues Invoice
Upon fulfillment of the order, the seller will proceed to ship the products to the buyer. After dispatching the items, the seller will then issue an invoice detailing the ordered items, prices, and payment terms. This invoice serves as a formal request for payment and helps ensure transparency in the transaction.

Participants: Suppliers, vendors, and buyers


Step 5: Invoice Matching
Once you’ve officially sent out the goods, you will need to double-check if the delivery matches the purchase order and the invoice. Process matching ensures that everything aligns with the order and the agreed-upon terms.

Participants: Buyers or purchasing agents


Step 6: Invoice Approval And Payment
After you confirm that the delivery matches the purchase order and the invoice, you can approve the invoice for payment.

Participants: Buyers or purchasing agents, accounting or finance staff


Step 7: Purchase Order Closure
At this point, the transaction must be complete. Meaning, the orders were delivered to you, and completely paid. Once everything is done, you can close the purchase order in your records.

Participants: Buyers or purchasing agents

While this process may seem like a lot of work, there is a lot of procurement software out here that can help you automate this process. Just in case you’re looking for software, you might want to check out our tool ProcureDesk. We have a team of experts who can walk you through how this works.

See it in action today!

Now that you understand the purchase order process, we would like to give you a sample so you can see how this process works in the real world!

Meet Sarah.


Step 1: Create A Purchase Order Requisition
Sarah, the purchasing manager at a manufacturing company, realizes the inventory of machine parts is running low.

She creates a purchase requisition to request a restock, specifying the types and quantities needed, as well as any special requirements.

Step 1: Create A Purchase Order Requisition


Step 2: Create And Approve A Purchase Order
After receiving approval for the requisition, Sarah creates a purchase order (PO) for the machine parts, including quantity, price, and supplier information.

She assigns a unique PO number for tracking and documentation.

Step 2: Create And Approve A Purchase Order


Step 3: Acknowledgement Of Purchase Order By Seller
Sarah sends the PO to the supplier, and the supplier’s manager, Alex, reviews it.

Since the supplier can fulfill the order as requested, Alex signs off on the PO, making it a legally binding contract. Sarah receives confirmation that the order has been accepted.

Step 3: Acknowledgement Of Purchase Order By Seller


Step 4: Seller Ships Product and Issues Invoice
After processing the order, the supplier ships the machine parts to Sarah’s company and sends an invoice requesting payment.

The invoice includes details such as the PO number, a list of delivered parts, prices, and payment terms.

Step 4: Seller Ships Product and Issues Invoice


Step 5: Invoice Matching
Once the goods arrive, Sarah verifies that the delivered items match the purchase order and invoice.

She checks the quantity, quality, and price of the parts against the PO and the invoice, ensuring everything aligns.

Step 5: Invoice Matching


Step 6: Invoice Approval And Payment
With the successful matching complete and all items in order, Sarah approves the invoice for payment.

The accounting department processes the payment to the supplier according to the agreed terms.

Step 6: Invoice Approval And Payment


Step 7: Purchase Order Closure
After the transaction is complete and the invoice has been paid, Sarah marks the purchase order as closed in the company’s records.

This indicates that the order is fully processed and the transaction is complete.

Step 7: Purchase Order Closure

Hopefully, the story of Sarah illustrates how the purchase order process works in the real world!


Chapter 5

Creating and Managing Purchase Orders

Managing your purchase orders is crucial, especially if you want a seamless flow to your purchase order process.

In this chapter, we’ll be discussing important concepts you need to know to achieve this goal! By the end of this section, you’ll get the answers to these questions:

1. What purchase order numbers are, and how do they impact the tracking of your purchase orders?

2. Why do you need an automated purchase order system to manage your purchase orders electronically?

3. What are the best practices for managing your purchase orders?

Purchase Order Numbers And Their Impact In Tracking Your Purchase Orders

A Purchase Order number also known as a PO number, refers to a specific code you assign to your purchase order so you can easily track it throughout the purchase order process.

PO Number

This unique identifier serves a very important purpose in your purchase order process, both for you and your sellers.

Here are the reasons why a purchase order is important:

A purchase order number is important for many reasons, including the following:

  • Tracking and Identification: Purchase order numbers allow your business to keep track of orders and easily identify them within your system, providing clear records for reference.
  • Monitoring Spending and Budgeting: PO numbers enable you to track your spending on specific orders and plan your budgets for future purchases more effectively.
  • Inventory Management: By using PO numbers, your company can easily manage your inventory more efficiently, keeping track of what items you need, and reordering them as needed.
  • Issue Resolution: PO numbers facilitate resolving issues with your suppliers and customers, serving as a point of reference in just in case of any issues in the future.
  • Streamlining Operations: By organizing orders and maintaining clear records, you can truly leverage the use of your PO to improve your business operations and improve your overall productivity.

Note: Although, you need to keep in mind that a Purchase Order Number is not an invoice number. An invoice number (or invoice ID) is used to track the payment of a purchase rather than the items purchased.


Where Is The Purchase Order Number Located In Your Purchase Order?

The location of your purchase order number usually depends on the template that you’re using.

Usually, it’s located at the top section of an invoice. Here’s a sample of a purchase order number found in a purchase order generated by ProcureDesk:

sample procuredesk purchase order


Why Are Purchase Order Numbers Important?

It doesn’t matter whether you’re on the side of the buyer or seller. A Purchase Order Number equally serves its purpose to both parties.

But for the purpose of this guide, we’re focusing on the importance of a PO number from the perspective of a buyer like YOU.

By simply using a unique PO number for every purchase order, it becomes easier for you to track your orders faster.

Let’s say in the future if you have any issues with your order, you can easily call your sellers and inform them of the corresponding PO number you’re having an issue with.

They can quickly pull out the records for these!

PO numbers to help in preventing duplicate payments, and other accounting errors that might potentially happen along the way.


How Do You Create A PO Numbering System?

There are actually 2 different ways you can approach this. You can do this either:

  • Manual
  • Automatic

Say you’re just running a small business.

You might opt to approach creating a purchase order manually because you only have a limited number of purchase orders to work with. Because of this, you can easily create a personalized system for assigning purchase order numbers.

Your system can include combinations of letters, numbers, and dashes in any arrangement that suits your business needs.

You could use sequential numbers starting with 1, 2, 3, or use a more complex format such as 00001, 00002, and so on. Adding a prefix like “PO” to the number can make your codes more identifiable.

In case you prefer a longer purchase order number, you can design the system based on the creation date of the order. For example, an order created on March 26, 2024, might have a PO number like PO03262024

But say your business is quickly expanding and the number of purchase orders you handle increases…

Then it might be quite challenging to manage your purchase orders manually. At this point, you might need to explore with an automatic approach.

Good thing there are now several affordable cloud-based accounting systems available that can automatically generate and assign purchase order numbers, streamlining the process.

Our tool ProcureDesk is actually capable of doing that! If you want to explore how it’s done, you can book a call with our experts.

There are different cloud-based accounting systems just like ProcureDesk that offer an integrated dashboard that not only handles the creation of purchase order numbers for you but also automates various aspects of your purchase order process within moments.

The best thing about these systems is that they are:

  • Effortlessly easy to use
  • Places new orders automatically
  • Monitors and tracks the status of the purchase order

The bottom line is in whatever method you choose, just make sure to always record the vendor’s name, key order details, and date of issuance for future reference.


What Is Purchase Order Tracking?

Purchase order tracking is also known as PO tracking. This refers to the process of managing the entire PO cycle from creation to approval.

In this section, we’ll be focusing on automated purchase tracking.

To fully appreciate the modern way of managing purchase orders, it’s important for you to understand where these also all began.

Did you know that in the past, managing purchase orders was a time-consuming process that required creating and sending paper forms?

Most businesses had to make multiple copies of each order.

  • One for the supplier and
  • One for internal records

And on top of that, businesses before had to wait for responses through mail or phone calls.

It’s pretty obvious how this method often led to delays and inefficient processes.

Good thing modern purchase order management has changed over time with technology/

Today’s methods streamline the entire process and offer ways that are easier to manage.

In the past, processing purchase orders involved using paperwork and manual tracking, which made it easy to lose track of orders.

This traditional approach often meant handling forms, emails, and spreadsheets to keep the process moving. Now, digital solutions bring speed, consistency, and automation to the table.


Automated Purchase Order Tracking

The good thing about tracking your POs through an automated tracking system is that it helps you view the real-time status of your purchase orders quickly and effectively.

Here are 3 simple reasons why it’s best to opt for an automated purchase order tracking system vs a traditional or manual purchase order tracking:

  • Since it’s automated, it saves you time when creating, routing, and requesting the approvals of your POs.
  • You can trust it more to store data, as you can easily access a pipeline of purchase orders digitally.
  • Since things are done automatically, you can be more consistent with keeping accurate information.

Overall, purchase order trackers are a great thing to lean on if you’re committed to building an error-free purchase order system where you can easily monitor, manage, and streamline the lifecycle of your purchase orders!

Just in case you want to learn more about PO tracking, we discussed this comprehensively in our recent blog. Learn the 3 ways you can track your purchase orders here.

In case you’re looking to explore into a cloud-based accounting software that can automate your purchase order tracking system for you, you might want to explore how to leverage our tool ProcureDesk. We have a team of experts who can walk you through how it works. See it in action today!


What Features Should You Look For When Planning To Use A Digital System To Track Your Purchase Orders?

When you’re ready to go out in the market and choose a purchase order tracking system for your business to use, we highly suggest that you need to consider the following features:


Real-time Inventory Updates
Does the system automatically adjust inventory levels when you submit a purchase order?

For example, if you request 700 yoga mats, does the system reflect this increase in quantity without manual intervention?

Can you track inventory usage and see up-to-date quantities within the software?


Comprehensive Reporting
Does the system provide detailed spending reports, showing your monthly expenditures and more?

Can you customize these reports to suit your business requirements, or are you limited to pre-set templates?


User-Friendly Input For Users
Are your technicians able to submit purchase orders easily?

Can you approve or reject their requests without complications?

How intuitive is the software for your team to use, and what kind of training is needed to get started?

Keep these questions in mind as you begin to evaluate different purchase order tracking systems. Look for a system that allows you to experience ease of use and something that can also easily adapt to your company’s unique processes.


Setting Up a Purchase Order System

Your transaction doesn’t end with your buyer after you fill out your purchase order.

If you want to streamline your supply chain management, you need to set up a good process to track your purchase order. This is where your purchase order system comes in.

As mentioned in the earlier sections, a purchase order system is the software you use to track and manage your digital purchase orders.

Creating a purchase order system from the ground up is something you’ll have to go through if you’re serious about streamlining your processes.

Here are the basic guidelines you need to remember when setting up your very own purchase order system:

Choose The Right Forms
Remember the section where we discussed the types of purchase orders. That’s exactly where you need to start.

Your first order of business is to identify the right forms for you. Choose what’s suitable for your transaction.


Design A Workflow
If you’re serious about automating your process, you need to outline the steps to your purchase order from beginning to end.

Build a step-by-step workflow. Outline what your purchase order goes through.


Identify Team Roles
You can’t be simply working alone in your procurement department, are you?

You need a team to help you out!

Make sure you take the time to assign roles to team members, so every one knows how they take part in fulfilling the purchase order process.

This is the time when you set access permissions to your team, and even to your stakeholders so everyone can contribute to the process accordingly.

Some key roles include:

  • System Administrator
  • Approver
  • Finance Team
  • Staff Level

Don’t Stop Improving
Nothing is perfect. And so is your purchase order system.

There will always be an opportunity to improve. That’s why, don’t hesitate to actively collect feedback from both your stakeholders and even your internal team.

Ask yourself, what else can we improve in the process?


How To Create Purchase Orders

As mentioned in the earlier sections, you can create a purchase order either manually or through an automated purchase order system like ProcureDesk.

Here are the steps to creating a purchase order manually:

Identify Your Needs
Begin by pinpointing the products or services you need to buy.

Make a detailed list, specifying quantities and any specific requirements. For example, an office manager might need to purchase office supplies, while an IT manager might require new equipment.


Evaluate Suppliers

Next, assess your existing suppliers to see if they can meet your current needs.

If you need to, research and evaluate new suppliers to find the best match for your requirements.


Request Quotes

Reach out to potential suppliers and request quotes for the goods or services you need.

This is your chance to compare options in terms of pricing, delivery schedules, and any other important terms.


Select a Vendor

Once you have quotes in hand, review them carefully.

Choose the vendor that offers the best overall value, balancing cost, quality, and delivery time.


Create and Approve the Purchase Order

Draft the purchase order using a template or digital tool.

Include essential information such as the supplier’s contact details, the items you want, quantities, delivery dates, and payment terms. Route the order for necessary approvals from finance and other stakeholders.


Send the Purchase Order

Once approved, send the purchase order to the supplier via email, fax, or mail.

Keep a copy for your records.


Confirm the Order

Follow up with the supplier to ensure they have received the order and are preparing to fulfill it. Confirm delivery timelines to avoid surprises down the road.

Now let’s cover how to create a purchase order through automation with a tool like ProcureDesk:

  • Identify Needs: Begin by specifying the products or services you require, including quantities. The system can help organize and manage this data for a seamless process.
  • Manage Suppliers: Leverage the system’s capabilities to oversee relationships with preferred suppliers and explore new options.
    This will help you maintain consistency in quality and pricing.
  • Automate Quote Requests: The system can handle the task of requesting quotes from suppliers for you, simplifying this step.
    Responses from vendors can be tracked and compared efficiently.
  • Streamline Vendor Selection: Automated systems offer predefined criteria for evaluating vendors, which speeds up decision-making and helps you choose the best option for your needs.
  • Generate and Approve Purchase Orders: The system can automatically create purchase orders with all necessary details, such as items, quantities, and delivery dates. It will route them for approval based on your company’s approval hierarchy.
  • Send and Track Purchase Orders: Once the purchase order is approved, the system sends it electronically to the supplier and keeps a digital record for your records.
  • Automated Follow-Up: The system can automatically follow up with suppliers to confirm they have received the order and are working on fulfilling it.This ensures smoother communication and reduces the risk of misunderstandings.

In the next section, we’ll discuss how you can leverage ProcureDesk for your purchase orders.


How To Use ProcureDesk As Your Purchase Order System

Our tool ProcureDesk is a powerful tool designed to manage your purchase order process.

In this section, we’ll be using our tool as an example to teach you how you use a purchase order system to manage your procurement process.

Here’s a step-by-step guide on how you can use ProcureDesk to create a purchase order:

Create a Purchase Order Request
Creating a purchase order request is the first step towards purchasing a product or service. With ProcureDesk, you can quickly create purchase order requests from supplier catalogs.

For example, if you want to purchase office supplies from Amazon, you can log into ProcureDesk and start the process by clicking on the Amazon logo.

You can then select the supplies you need, and instead of placing the order directly, you are routed back to ProcureDesk where the cart data is imported to your ProcureDesk shopping cart.

Alternatively, you can add items from an internal catalog or manually enter item descriptions.

Order Header and Shipping Details


Check Budgets
After creating a request, check the budgets to ensure funds are available for the purchase.

Unlike manual processes, ProcureDesk automatically handles budget checks.

Administrators can define budgets and assign access in advance. Employees can see available budgets and select the appropriate budget for the purchase.

If there isn’t enough budget, the system can trigger an additional approval workflow or block the purchase, prompting the user to consult with finance.

Monthly Budget Detail


Submit for Approval
Once the purchase order request is ready and within budget, you can submit it for approval. ProcureDesk automates the approval process based on your predefined approval hierarchy.

For example, if a request exceeds a certain threshold (e.g., $5,000), it may need to be approved by a higher-level manager, such as the VP of finance.


Approve the Request
The approver receives a notification alerting them of a pending request. ProcureDesk offers several methods for approving requests:

  • Web Application: Approvers can log in to the ProcureDesk application to review and approve the request.
  • Mobile App: Approvers can use the mobile app for on-the-go approvals.
  • Email: Approvers can directly approve requests from their email inbox.

Daily reminders keep approvers on track and ensure no request lingers for too long.

Mobile app for approvals


Submit Purchase Orders to the Supplier
Once the request is approved, ProcureDesk automatically generates a purchase order and sends it to the supplier. You can customize the purchase order template to fit your unique needs.

The purchase order can be delivered to the supplier in various ways:

  • Vendor Portal: Use a vendor portal for direct order submission.
  • Email: Automatically email the purchase order to the supplier.
  • Data Exchange: Utilize formats like cXML for efficient data transfer.

By automating this step, you save time and reduce the risk of errors.


Vendor Acknowledges Receipt
The final step in the process is for the vendor to acknowledge receipt of the purchase order. ProcureDesk supports various methods for vendor acknowledgment:

  • Vendor Portal: Vendors can acknowledge orders and provide delivery dates or notify potential delays through the portal.
  • Email Confirmation: Vendors may respond via email, confirming receipt and providing delivery information.

You can specify acknowledgment instructions on the purchase order for the vendor.


Using ProcureDesk for your purchase orders optimizes your purchasing process, making it faster, more accurate, and more reliable.

If you’re curious about how our system can help you build a streamlined procurement process, we have a team of experts who can walk you through how it works. See it in action today!


How To Fill Out And Complete A Purchase Order

Filling out your purchase order is just like planning a successful event.

You need to prepare the details and coordinate with the RIGHT people if you want it to be smooth sailing.

Same as a purchase order, you also need to prepare all the details and know all the RIGHT people involved in the process.

Here’s how you fill out a purchase order correctly:

Gather The Information You Need
Begin by preparing a purchase requisition, an internal document that outlines the details of your proposed order.

Include clear descriptions of the items and precise quantities to avoid confusion.

Collaborate with Your Team
After you’ve completed your requisition, engage with your team to verify the items and quantities you’re requesting.


Place Your Order
Once your requisition is ready and your team has provided input, move forward with placing your order.

Agree on essential terms like delivery date and payment method with the supplier.

Your purchase order must be signed to make it legally binding. Make sure that you include details like item costs, order numbers, and even contact information.


Verify and Confirm
After placing your order, the supplier usually sends a sales order as a confirmation receipt.

This document serves as an opportunity to double-check the items ordered and ensure everything aligns with your initial request.


Inspect Upon Delivery
When your order is delivered, inspect the items against your purchase order and sales order to confirm you received the correct products and quantities.

Address any discrepancies with the supplier immediately.


Use Automation
We highly encourage you to leverage automation tools like ProcureDesk if you’re serious about streamlining your purchase order process and reducing manual errors.

If you’re curious about how to use our tool so you can build a better procurement process for your business, we have a team of experts who can teach you how it’s done. See ProcureDesk in action today!


BONUS: Free Purchase Order Templates and Forms For You

We’re offering free purchase order templates to help you streamline your purchasing process!

  • Google Sheets Purchase Order Template: Download and use our ready-to-go template in Google Sheets.
  • Excel Purchase Order Template: Access our convenient purchase order template in Excel format.

For more information on how to use these templates effectively for your business, check out our dedicated guide. Check it out now!


Best Practices To Manage Your Purchase Orders

When it comes to managing your purchase orders, getting it right can mean the difference between having a smooth & hassle process vs a process filled with headaches.

You’ll need a well-run purchase order system if you want to keep your supplier relationships strong.

In this section, we’ll be giving you tips to help you master the art of managing your purchase orders so you can build better connections and set your business up for success!

Conduct a Thorough Process Review
Start with a deep dive into your existing purchase order procedures.

Identify specific stages where problems arise, and engage with different departments to get a clear picture of the issues. Gathering insights from those directly involved can guide targeted improvements.


Create Clear, Custom Guidelines
Craft detailed, easy-to-follow instructions on how to handle purchase requisitions, evaluate suppliers, and manage approvals.

This clarity will help standardize your process, reduce missteps, and ensure new team members are up to speed quickly.


Develop Tailored Approval Workflows
Customize approval paths to fit your organization’s unique needs and industry standards.

Establish authority levels to speed up decision-making for small orders while ensuring proper scrutiny for high-value transactions.

This balance prevents bottlenecks while maintaining accountability.


Build and Maintain a Vendor Database
Maintain a comprehensive database of your vendors, including their contact information, product offerings, and terms of service.

This resource can expedite order placement and streamline decision-making when you need to choose between suppliers.


Adopt Advanced Procurement Software
Leverage cutting-edge procurement solutions that automate and manage your purchase orders.

From initiating requests to tracking progress, technology enhances your efficiency and allows for more strategic decision-making.


Organize and Define Spending Categories
Categorize your purchases (e.g., office supplies, equipment, raw materials) and set specific spend limits for each.

By clearly defining budgets and categories, you maintain tighter control over spending and avoid costly mistakes.


Utilize Budgeting and Approval Technologies
Empower your finance team with tools that set clear departmental budgets and track orders in real time.

Automated notifications ensure you stay within budget and allow for quick intervention when necessary.


Leverage Vendor and Contract Management
Advanced procurement software provides a suite of features for managing vendor relationships and contracts.

Dashboards offer insights into approvals, compliance, and critical contract milestones, helping you optimize and safeguard your partnerships.


Standardize and Refine Processes
Consistency is key to successful purchase order management.

Establish a repeatable approach for each order, and continually refine it based on performance data and feedback.


Prioritize Communication and Confirmation
Ensure seamless communication with suppliers to align on needs, expectations, and quality standards.

Confirming order details like quantities and pricing prevents delays and ensures on-time delivery.


Verify Deliveries and Resolve Issues
Upon receiving goods, compare them against the purchase order to ensure accuracy and quality.

Quickly address any discrepancies with suppliers to avoid disruptions.


Monitor and Evaluate Spending
Use your purchase order management system as a tool for reviewing procurement data and identifying opportunities for improvement.

Analyze trends to adjust your strategy and optimize spending.

Chapter 6

Legal Aspects of Purchase Orders

Have you ever wondered whether a purchase order holds legal weight? This is exactly what we’ll explore in this chapter.

We’ll discuss what it takes for a purchase order to become legally binding so you can use it to protect your interests in case of disputes.

We’ll also examine the key differences between purchase orders and contracts. Understanding the difference between these will help you understand what to use for your business transactions.

Purchase Orders, Purchase Agreements, and Contracts: How Do They Differ?

Generally, contracts, purchase orders, and purchase agreements are all legal documents you csan use to govern the different aspects of your business transactions.

Although, they each serve their own purpose:

Purchase Orders, Purchase Agreements, and Contracts: How Do They Differ?


Contracts are legal documents used to outline an arrangement between two or more parties.

They specify how the parties will collaborate, whether it’s for personal or professional purposes.

For the purpose of this guide, we’re focusing on it’s professional use. The key elements of a contract between a buyer and a seller include:

  • Price of goods or services
  • Length of agreement
  • Commmitment to fulfill a task or refrain from doing a specific action

Sample Scenario: A cafe owner (buyer) hires a local artist (seller) to create a mural for the cafe. They sign a contract that outlines the project’s timeline, the agreed-upon payment, and the artist’s obligation to complete the mural according to the cafe owner’s design preferences. The contract also specifies that the cafe owner will provide necessary access to the space for the artist.


Purchase Orders (POs)
A purchase order is a document a buyer sends to a seller to request goods or services.

It includes details like product descriptions, quantities, and agreed-upon prices.

A purchase order becomes a legally binding agreement once the seller accepts it, either by confirming in writing or by fulfilling the order.

Sample Scenario: A bookstore owner (buyer) sends a purchase order to a publisher (seller) requesting 200 copies of a new novel. The PO includes details such as the title of the book, quantity, price per copy, and desired delivery date. Once the publisher confirms the order or ships the books, the purchase order becomes a binding agreement between the buyer and seller.


Purchase Agreements
These are more comprehensive documents that outline the terms of a specific sale, usually in greater detail than a purchase order.

Purchase agreements include terms related to pricing, delivery, payment schedules, and warranties.

They are commonly used in significant transactions, such as real estate or high-value goods purchases.

Sample Scenario: An electronics retailer (buyer) wants to stock the latest gaming consoles from a manufacturer (seller). They enter into a purchase agreement that specifies the number of consoles, total cost, delivery dates, and payment terms. The agreement also includes details such as warranty terms and provisions for returns in case of defective products. This comprehensive document ensures both parties understand the full scope of the transaction.


Is A Purchase Order Legally Binding?

Initially, a purchase order is only an offer you create if you want to buy goods from your seller.

This does not automatically become a contract when sent. It only becomes a legally binding contract in these two scenarios:

  • Seller’s Acceptance: If the seller agrees to the terms outlined in the purchase order and either signs it or confirms acceptance in writing, it becomes a contract.
  • Seller’s Performance: If the seller delivers the goods specified in the purchase order, it is also seen as acceptance of the terms, making it a binding contract.

The key parts of a legally binding contract include:

Key Parts Of A Legally Binding Contract

  • Offer: Describes what is being exchanged between you and your seller
  • Consideration: Outlines the obligations of both parties, such as payment and delivery terms.
  • Capacity: Signatures must come from individuals who are legally able to enter into contracts.
  • Intention: You and your seller must agree to the contract willingly and without any pressure.
  • Legality: The contract must be for a lawful purpose and cannot involve illegal activities.
  • Acceptance: You and your seller need to agree to the contract terms and typically show this with their signatures.

Here’s what a binding purchase contract includes:

What does a binding Purchase Contract include?

  • Purchase Details: What are you buying from your seller? Make sure to include price and delivery.
  • Delivery Date: When will the goods or services be delivered?
  • Cancellation and Termination: What are the conditions for canceling the PO or ending the contract.
  • Payment Terms: When payment is due (e.g., net 30 terms mean payment is due within 30 days), and penalties for late payment.
  • Indemnification: What happens if the seller doesn’t deliver as promised.
  • Confidentiality Agreements: Rules to protect sensitive information.
  • Warranties and Buyer’s Rights: Descriptions of any guarantees offered to the buyer.
  • Applicable Laws: Federal or local laws that apply to the transaction.
  • Insurance and Liability Requirements: Any necessary insurance or liability coverage.
  • Worker’s Compensation: Requirements for workers’ compensation.
  • Contractor Rules: Guidelines for working with outside contractors and subcontractors.
  • Legal Fees: Rules on who pays for legal fees if there are disputes.


When Is The Right Time To Use A PO And A Purchase Agreement?

Choosing between a Purchase Order (PO) and a Purchase Agreement depends on the type and complexity of the transaction you have with your buyer.

In situations involving ongoing transactions with multiple deliveries over time, both types of documents may be used together.

A purchase agreement can lay out the main terms of the deal, while POs manage individual deliveries as needed.

Sometimes, a “blanket” purchase order is used to cover all terms for a long-term supply arrangement with your buyer.

This will allow you to request specific deliveries through other documents called
“release” orders or “calls.” This setup can be established through a product supply agreement.

You can generally use PO’s for simpler transactions or when there will be repeated purchases of similar goods.

Say, you’re buying office supplies or other items you order that regularly requires a PO.

On the other hand, you can use purchase orders for more complex transactions.

Say for instance, you may prefer a purchase agreement if you’re about to buy a $100,000 piece of machinery that requires your seller to set up and offer additional support.

Whatever you use, what’s important is you use the proper document that includes all the necessary terms and agreements.


What Is The Difference Between A Purchase Order And A Contract?

Understanding the distinction between contacts and purchase orders (PO) are important if you want to manage your transactions effectively.

Although both are legal documents that you can use to buy goods or services, these have their own different purpose and operate in different ways.

Let’s take a look at their difference:

Purchase Order vs Contract



  • A contract establishes a long-term agreement between a buyer and a seller, providing a foundation for ongoing business relationships.
  • It serves as a guide for creating purchase orders (POs) and outlines the key terms and conditions that will govern future transactions.
  • Contracts can be renewed or renegotiated over time to adapt to changing needs and market conditions.
  • Pricing and terms are set for the duration of the contract, offering consistency and predictability for both parties.


Purchase Order

  • A purchase order is a document used to execute a single purchase, specifying the goods or services to be bought and the agreed-upon price.
  • POs are created based on the terms and conditions outlined in a contract, serving as the practical application of the broader agreement.
  • While POs can be negotiated, they are limited to the specific details of a single purchase rather than establishing long-term terms.
  • The pricing and terms in a PO apply solely to the particular transaction at hand, providing a clear scope for the individual purchase.

Chapter 7


No doubt, purchase orders play a central role in modern procurement and supply chain management.

Purchase orders have a structured approach, allowing your organization to go flawlessly navigate the supply chain with accuracy.


The Impact Of Purchase Orders On Procurement And Supply Chain Management

POs are great at establishing a clear framework for better communication between you and your suppliers. That’s why, they help foster trust, reliability, and partnership.

How could we not love purchase orders? The fact that they help you:

  • Improve your inventory management
  • Achieve precise budgeting
  • And help you stay compliant with contract terms

Is more than enough proof to see how these can help your business drive sustainable growth, and a future-ready supply chain!

Chapter 8

Frequently Asked Questions


What Does A Purchase Order Look Like?

A purchase order (PO) is a standardized document that includes specific details about a purchase request. It typically features:

  • Buyer and Seller Information: Names, addresses, and contact details of both parties.
  • PO Number: A unique identifier for the order.
  • Date: The date the PO is issued.
  • Item Details: Descriptions, quantities, and prices of the goods or services being ordered.
  • Total Cost: The overall cost of the order.
  • Delivery Instructions: Details such as the delivery date and location.
  • Payment Terms: The agreed-upon method and timeline for payment.
  • Terms and Conditions: Any other specific terms related to the purchase.


How Does Purchase Order Financing Work?

Purchase order financing is a financial arrangement that allows businesses to access funds based on their POs. Here’s how it works:

  • Approval: A financial institution reviews the PO and agrees to provide funds based on the order’s value.
  • Funding: Once approved, the financial institution provides the necessary capital to fulfill the order.
  • Repayment: When the order is fulfilled and the buyer pays, the business uses the payment to repay the financier, typically with interest.
  • This financing option is especially useful for businesses that need capital to fulfill large orders but may not have the immediate funds available.


How To Create, Write, And Fill A Purchase Order?

Creating a purchase order involves several steps:

  • Choose a Template: Use a standard PO form or software to create a new order.
  • Add Header Information: Include the buyer and seller details, PO number, and date.
  • List the Items: Describe the goods or services, quantities, and prices.
  • Calculate Total Cost: Add up the costs of all items.
  • Specify Delivery Details: Provide the delivery date and location.
  • Include Payment Terms: Outline the agreed-upon payment method and schedule.
  • Add Terms and Conditions: Mention any other necessary terms related to the purchase.
  • Review and Send: Double-check the order for accuracy and send it to the seller for review and acceptance.