Purchase order: Overview, definition and example
What is a purchase order?
A purchase order (PO) is a formal document that a buyer sends to a seller, specifying the products or services they want to purchase. It includes details like the quantity, price, delivery timeline, and payment terms. Once accepted by the seller, it becomes a binding agreement between both parties.
Why is a purchase order important?
A purchase order is important because it creates a clear, written record of what has been agreed upon in the transaction. This helps both the buyer and seller avoid misunderstandings about the order and ensures accountability. It also provides legal protection if disputes arise about the terms or fulfillment of the order.
For businesses, purchase orders simplify the procurement process, improve financial tracking, and help manage inventory or service expectations.
Understanding purchase orders through an example
Imagine a restaurant orders kitchen supplies from a distributor. The restaurant sends a purchase order specifying 100 plates, 50 sets of cutlery, and 10 serving trays, all to be delivered within two weeks at a total cost of $1,500. The distributor reviews the PO, accepts it, and begins preparing the shipment.
By using the purchase order, both parties have a clear record of what’s being purchased, when it will be delivered, and at what cost. If there’s a mistake in the delivery—such as missing items—the purchase order serves as proof of what was agreed upon.
An example of a purchase order clause
“This purchase order constitutes the entire agreement for the goods specified herein. Acceptance of the order by the Supplier indicates agreement to the terms, including delivery timelines, pricing, and payment terms.”
Conclusion
A purchase order is a critical tool in business transactions, providing clarity and accountability for both buyers and sellers. It ensures all details are documented upfront, reducing the risk of disputes and helping businesses manage orders efficiently. By using purchase orders, companies can maintain smoother operations and better financial control.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.