Purchase Orders Explained

A Purchase Order (PO) is an instruction to a supplier, to supply goods or services at a price and timescale that you state. The supplier receives the purchase order and decides whether to accept the order. 

In Zahara, you can create purchases. These are requests to buy goods or services that can then be converted to purchase orders and sent to a supplier. The Purchase Order can then have it’s delivery receipted – GRN and an invoice recorded against it.

Purchases facilitate spend control and provide the finance team with the visibility of all spend where an invoice or created card payment can be expected. 

Purchase requests/requisitions can be used for all spend. Think of them as pre-spend approvals. Purchase Orders should only be sent to suppliers though who require them and you know will act on them. If your supplier only processes orders placed online, sending them a purchase order is pointless. 

Choosing the format of the purchase order is also important. If you are sending simple one-line orders then a PDF purchase order is suitable. If you are sending complex multi-line orders you should enquire whether a format like CSV or JSON is more suitable for them. Ask your supplier what can you do to facilitate better order processing accuracy and faster processing of your orders. Zahara can accommodate these three formats. 

The benefit of purchase orders for you as a business, or at least requisitions,  is that you now have advanced warning in the finance team of an expected invoice. If you are sending your suppliers purchase orders, invoice automation with straight-through processing is now likely. 

Zahara has a number of Purchase Order Templates you can choose from and then a selection of fields that can be placed on the template. The key parts of the purchase order are 

• The date of the order
• The date the goods or service are required
• Your legal entity – who is the buyer
• The suppliers details – the seller
• The delivery address
• The currency 
• The items you wish to purchase – use product codes wherever possible to avoid errors
• The quantities you require
• The price you expect to pay 
• The tax rates you expect to be charged
• The payment terms you expect 
• The terms and conditions you expect this order to be made under – theirs or yours

There is often a battle with a purchase order between buyer and seller over who’s terms apply. The buyer states with their purchase order, “I would like you to supply these goods and service at this price, subject to my terms”

The seller, your supplier, will supply the goods or services though, subject to their terms. They may have terms and conditions on their website or they may have made you sign an order form.

Payment terms are an example of this. The supplier will expressly say “Payment is 30 days from the invoice date”. The buyer may state on their purchase order that they only pay on 60 days. In some circumstances, this may be a case of who blinks first. If the seller may hold back the order until you agree on terms. The buyer may simply ignore the payment terms stated. 

What you can do is reference your key terms on your purchase order. You can edit your Purchase Order template in Zahara’s Business Settings. You may also like to provide a hyperlink to a Terms and Conditions page or PDF on your website. 

Here are some tips for creating a good purchase order. 

1. Use the supplier’s product codes so they know exactly what to supply. 
2. Use a unit field so you can state what type of product you are expecting.
3. State the currency you expect to buy in. 
4. State your expected payment terms. 
5. Make the purchase order clear.
6. Send a CSV file as well with them Purchase Order PDF if it helps the process the order more easily.
7. Make sure Purchase orders are sent by authorised personnel only – control your costs