Purchase Order Financing

doug fosheeA purchase order is a document raised by a retailer to his supplier when he wants to place orders for certain items for his store.

Typically, a PO consists of the items purchased, the number of items, their price, the supplier’s name and details, the payment status(whether pending or paid), etc.

This is an extremely important and helpful document for a few reasons:

Great clarity in communication with the supplier before you actually pay for your items. Unlike agreeing on the items to be purchased over the phone, the retailer can have solid proof of what his supplier has agreed to deliver to the retailer.
Have all details in one single document, instead of having one for quantity, one for the price of items, payment, etc.

A PO is a great tool for inventory management. You will easily get to know what items are about to go out of stock and need to be soon purchased. There are many reasons for a seller to be using a PO. Read them here: 8 reasons why you should make a purchase order.

Usually, organisations have a large volume of POs so the more you have the more important it is. A numerical system is the simplest and easily computer generated.

In my early days, we had a book where you just took the next number in line and recorded the contractors name and details, description of the goods or services and the client reference and any other pertinent details such as delivery time so you could check the progress – the good old manual system which would still work for organizations who do not have large volumes. We also used to file copies of POs away in folders which were a number with the range of POs they covered. These were kept for many years as we archived the file after three years. However 5 years later you could get a query and you then had access to the contract quickly.

financingA purchase order is a unique and itemized document from the accounting department that allows an invoice to be paid and has the appropriate approvals before the supplier is notified. Each managerial level is authorized to approve up to a certain expenditure. Larger expenses require more approvals up the organization. Each approval is made by the manager who is responsible for their departmental budget.

Without a purchase order number, the supplier cannot be sure that the company is going to pay for the item once delivered. If the supplier has any suspicion that the PO# is fake they can just call the finance dept. Falsifying company documents is usually grounds for dismissal.