Why Purchase Orders Will Make You a Happier E-Commerce Owner

ControlHub
April 7, 2022

There are a lot of perks to operating a small business online. You don’t have to pay monthly overhead for a brick-and-mortar store. You can work in your pajamas at noon or while pacing on a treadmill at midnight. You get to setup your own processes as well, and that includes an effective purchase order process. 

Wait, what? You have to generate purchase orders (POs) whenever you want to buy something for your e-commerce business? I thought we were talking about the benefits of operating an online business! 

Yes, POs are still necessary for your business, especially in the realm of indirect procurement. It doesn’t matter whether you operate entirely online, in a brick-and-mortar storefront, or both. Some paperwork is necessary to protect your business and minimize the risk of costly mistakes. An efficient purchasing process complete with well-designed POs, particularly in the context of indirect procurement, is one of the most important processes you will create as a business owner.

Creating purchase orders for an online business may not seem like a perk, but it's actually a critical element of successfully running an online business. POs help to ensure that orders are accurate, that payments are made on time, and that there is a clear record of all of your purchases. This information can be incredibly useful for budgeting and forecasting, as well as for tracking inventory and sales. Plus, creating purchase orders can help you to get better deals from vendors and suppliers, as they may offer discounts or other incentives for ordering in bulk.

Finally, purchase orders can help you to streamline the payment process by providing a standardized way to submit orders and payments. All of these benefits can result in increased efficiency and profitability for your online business.

Intro to Purchase Orders 


Purchase orders are created by the purchaser and delivered to the supplier. They detail the products or services needed along with price and other important details. For many e-commerce business owners, filling out the PO is the final step in the purchasing process. They make their final buying decisions and put it in writing, verifying all details before passing it to the supplier. 

If multiple people need to sign off on large purchase, the PO is an easy way to communicate clearly. One person or department can create the order and then other interested parties can review it before it’s delivered. 

If you’re still thinking that you purchasing decisions are just fine without this added step in your purchase order system, stick around a bit longer. We’re about to tell you how simple POs make your life as a small business owner easier and even safer. 

Are purchase orders right for your retail store? 


There are valid reasons for using POs when you place orders with vendors or receive orders from customers. When you receive orders from a purchaser, the PO makes it easy to track unfulfilled orders, order stock in advance, and then compare the purchase against the invoice to ensure accurate fulfillment. 

When you place orders with other suppliers for your business, the PO allows you to legally document your order. You will have proof of what you ordered, including the quantity, pricing, and payment terms. Keeping POs on hand for all fulfilled orders makes it easy to look at past orders for legal purposes. You can also look at past purchase orders when deciding what to reorder in the future. 

Most e-commerce businesses need an organized purchase order system. If you know that your purchase order process is far from perfect right now, we’re about to tell you everything that you need to know to fix the problem. It starts with an understanding of the PO structure. Try our free Purchase Order Template and streamline your Procurement Process!

What’s the structure of a PO? 


There are 10 basic features that appear on most purchase orders. You may add some information or omit some of these features, customizing your PO to your business needs. 

  • PO Number – Every PO generated receives a number for tracking purposes. This number is also listed on the coordinating invoice as well. 
  • Product Description – Each product ordered is identified with a brief description. 
  • Technical Specifications – Specs are added to identify sizes, colors, model numbers, and other technical specs for ordered products. 
  • Unit Quantity – Identify the quantity ordered for each product or service package on the PO.  
  • Price Per Unit – Identify the price for one unit of each product or service package on the PO. 
  • Total Price – The total price, including all products and services on the PO. 
  • Delivery Date – Set the date that the supplier will deliver the order or fulfill the service. 
  • Delivery Location – Identify the address where the supplier will deliver the product or service, if applicable. 
  • Billing Address – Set the address associated with the purchaser’s location and/or banking information. 
  • Payment Terms – Clearly state the specific terms of payment, as agreed upon by supplier and purchaser. 

Sales Orders vs. Purchase Orders: Key Distinctions for Business Success

Sales orders and purchase orders are fundamental documents in the world of business, each playing a distinct role in the supply chain. Sales orders represent the demand side of the equation, initiated by customers when they want to purchase goods or services from your company. These orders outline the specifics of what a customer needs and when they need it. On the other hand, purchase orders are generated by your company when you intend to buy goods or services from suppliers. They detail what you require, terms of the purchase, and when you need it.

Understanding the importance of these documents is crucial. Sales orders help your business manage customer demand, ensuring you fulfill orders accurately and on time. They also serve as a basis for revenue recognition, helping you track your sales performance. Meanwhile, purchase orders are vital for managing your supply chain efficiently. They allow you to control costs, negotiate favorable terms with suppliers, and maintain inventory levels that meet demand without overstocking.

Benefits of Purchase Orders for e-Commerce


We’ve already identified some of the most basic reasons that e-commerce business owners use purchase orders, but there’s more! In addition to basic tracking and documenting, you have a lot to gain by implementing POs in your purchasing process. Let’s take a look at the most important benefits before we discuss the different types of orders used for purchasing. 

Provide Legal Protection 


What happens when you order 40 white blanks for your online t-shirt business and receive a mishmash of shirts in five different colors? Your first impulse is to contact the vendor to have the order corrected, but what if their record of your order differs from what you know you ordered? 

Discrepancies like this are time-consuming on both sides, but they’re also avoidable. When you implement a thorough purchase order system that includes a PO signed by both parties, you create a legal document that holds everyone accountable to their end of the agreement. 

If there’s a dispute over pricing, quantities, or technical specs for an order, you can refer to the purchase order. That quickly solves a problem that may otherwise ruin a good working relationship or even lead to legal troubles

Simplify Order Tracking & Inventory Management 


You may start your e-commerce business with just a few orders for supplies here and there. You may simply pay with your debit or credit card and click a tracking link through email. As your business grows, it becomes more difficult to track a larger number of purchases and potentially more expensive orders. That’s where procurement software becomes an asset. You assign each purchase order a PO number and then track orders to ensure they are accepted by the vendor, fulfilled, paid, and completed. 

Technology has improved the purchase order process to ensure you always know how much you’re paying for an order plus when and where your vendor will deliver. When using the software for your business, you can include inventory in the process, ensuring products are reordered quickly to avoid supply chain issues. 

What’s coming in, and what’s going out? That’s important information for every small business, and a purchase order system keeps you informed at all times. 

Less Painful Audits


No one wants to think about getting audited, but the potential is a reality for every business owner. While working with purchase order software offers no protection, it can make the auditing process easier if it does happen to you. You can use your POs to show your business purchases over any length of time. The days of rifling through hundreds or thousands of paper receipts or printing endless emails as evidence are over. 

Keep Vendors Organized 


A lot of order fulfillment mistakes come from misunderstandings between the purchaser and supplier. Details can get lost in a long email chain. Verbal orders placed over the phone leave your order at the mercy of someone else’s memory or notetaking skills. There are also language barriers and other issues that can lead to wrong orders. 

When you use a purchase order system, you provide every detail of your order in writing. The vendor reviews the PO and signs to verify that they understand the order and are able to fulfill it on time. If they have their own system for purchasing set up, your PO makes it easier for them to track their own orders and inventory. 

Simplify Budgeting 


When you use a dedicated purchase order process, you always know exactly what you will pay for an order. When someone provides a PO for your products or services, you can verify that their pricing expectations are accurate and sign off to make it official. There’s less room for surprises and disagreements over what one party is paying and other expects to receive. 

You may find that there are other benefits of using professional purchasing software for your business. Now that we’ve covered some of the biggest perks that apply to all businesses, it’s time to look at the different types of purchase orders and how they may apply to your business. 

The Significance of Purchase Orders Template in Streamlining Procurement

Harnessing the efficiency of purchase orders templates is akin to setting a foundational pillar for your hardware startup's procurement processes. A well-structured template not only provides a standardized format but also ensures consistency in capturing vital order details. With the dynamism that hardware startups usually display, any tool that fosters streamlined, repeatable, and error-free operations is invaluable. Such templates, when embedded within an automated purchase order system, become the bedrock for speed, accuracy, and scalability. In essence, while automation is the engine driving the procurement car, the purchase orders template is the blueprint ensuring the car is built to perfection.

The Crucial Role of a Purchase Order Template in Business Efficiency

In the fast-paced world of business, precision and efficiency are paramount. This is where a Purchase Order Template in word processing software plays a vital role for companies. This seemingly simple document is the linchpin of successful procurement, ensuring that orders are clear, organized, and compliant with company policies.

Through the use of a Purchase Order Template, companies can streamline their purchasing processes, reducing the risk of errors and misunderstandings. It serves as a standardized blueprint, guiding employees through the procurement process and facilitating communication between departments.

Furthermore, this template helps businesses maintain a comprehensive record of their purchases, promoting transparency and accountability. It becomes invaluable during audits, budget planning, and vendor negotiations.

The Power of Purchase Order Tracking

Purchase order tracking is a pivotal aspect of procurement, ensuring efficiency, transparency, and cost control. It entails monitoring the entire lifecycle of purchase orders, from creation to fulfillment and payment. The significance of purchase order tracking in procurement becomes evident through several vital benefits:

1. Visibility and Accountability: Tracking purchase orders grants real-time visibility into order statuses, fostering accountability among suppliers and buyers, thus mitigating the risk of errors and disputes.

2. Budget Control: This tool enables organizations to maintain budgetary control by monitoring spending against approved purchase orders, thus preventing overspending and facilitating well-informed financial decisions.

3. Supplier Performance Evaluation: Purchase order tracking aids in evaluating supplier performance, allowing organizations to identify reliable suppliers and address issues with underperforming ones, ultimately enhancing supplier relationships.

4. Efficient Workflow: By streamlining the procurement workflow, purchase order tracking ensures prompt order processing, reducing delays and minimizing disruptions caused by late or missing supplies.

5. Compliance and Audit Trail: Maintaining comprehensive purchase order records ensures compliance with regulatory requirements and provides an audit trail for both internal and external audits, ensuring transparency and accountability.

6. Forecasting and Planning: Historical purchase order data proves invaluable for future procurement planning, enabling organizations to make data-driven decisions, optimize inventory levels, and negotiate better terms with suppliers.

7. Reduced Errors: Tracking purchase orders helps detect discrepancies and errors early in the process, lowering the risk of incorrect shipments, billing discrepancies, or missing items.

Purchase order tracking is an indispensable tool for effective procurement management. It empowers organizations to optimize their procurement processes, exercise budgetary control, nurture supplier relationships, and ultimately contribute to overall business success.

Types of Purchase Orders


You don’t have to overcomplicate or reinvent purchase orders. Business owners love to brand and customize every piece of paper and digital product that they use, but you don’t have to make your purchase order system complicated. You can copy from a standard PO and add your own details to get started instantly. You can also utilize a software that creates the PO form for you in no time. It still helps to understand the most common types of POs because you may have a need for something beyond the standard format. 

Standard or Single-Use Purchase Orders 


This is your basic PO used for simple or one-time purchases. It contains all the details from product or service information and quantity to payment and delivery terms. You keep this on hand and fill it out quickly when you order from a supplier without an ongoing contractual relationship. 

If you just want to keep this simple, go with a standard purchase order template. It will contain everything you need to communicate with your vendors to place an order quickly. 

Planned Purchase Orders 


When you enter an ongoing agreement with a vendor, your purchase order system can get messy and confusing. You could use your standard PO form and offer one for every stage of the agreement, but that makes it difficult to track where you are in the order and fulfillment process. 

Planned purchase orders allow you to cover large orders even if they’re delivered in installments over time. They make it easier to document ongoing relationships while making sure that both parties are up to date and aware of the next step to take. 

Blanket Purchase Orders 


Think of this as a less detailed PO. It may seem like the simplest or most basic option for one-time or occasional orders, but that’s still the standard PO. Blanket POs are more like acknowledgements that you intend to purchase specific products or services from a supplier or vendor in the future. The order doesn’t bind you to specific quantities or dates, so it’s more open ended. 

Contract Purchase Orders 


Contract POs are simple and efficient ways to create a binding contract between two businesses. You essentially lay out the details of how you will work with one another, including payment terms. Once signed by both parties, you have a valid contract that sets expectations for future purchasing deals. 

Not every e-commerce business will need contract or blanket orders. It’s still great to have a dedicated purchase order system that allows you to use them when necessary. 

What Are Purchase Order Terms and Conditions?

Purchase order terms and conditions are the contractual clauses and stipulations that govern the buyer-supplier relationship during a purchase transaction. They outline the rights, responsibilities, and expectations of both parties, establishing a clear framework for the purchase.

Key Components of Purchase Order Terms and Conditions:

Payment Terms: This section specifies how and when payments will be made, including details such as payment methods, due dates, and currency.

Delivery Terms: These terms outline how and when the goods or services will be delivered, including shipping methods, delivery dates, and any associated costs.

Product Specifications: Detailed descriptions of the products or services being purchased, including quantity, quality standards, and any applicable warranties.

Pricing: The agreed-upon prices for the products or services, including any discounts, taxes, or additional fees.

Cancellation and Returns: Guidelines for canceling or returning orders, along with any associated penalties or restocking fees.

Intellectual Property: If relevant, this section addresses the ownership and usage rights of intellectual property associated with the purchase.

Dispute Resolution: Procedures for resolving disputes between the buyer and the supplier, often through negotiation, mediation, or arbitration.

Confidentiality: Protection of sensitive information shared during the transaction, ensuring it remains confidential.

The Role of Procurement Software:

Automation: Procurement software streamlines the process of generating purchase orders and ensures that the relevant terms and conditions are automatically included. This minimizes errors and saves time.

Compliance: Procurement software can help ensure your purchase orders comply with industry regulations and your organization's internal policies.

Visibility: By storing purchase order terms and conditions digitally, procurement software makes it easy to access and reference them when needed, promoting transparency.

Auditing: These systems record of all purchase orders and their associated terms and conditions, aiding in audits and compliance checks.

Benefits of Properly Managed Purchase Order Terms and Conditions:

Risk Mitigation: Defined terms and conditions reduce the risk of disputes and legal issues, protecting your organization from potential financial and reputational damage.

Cost Control: Properly negotiated terms can lead to cost savings through favorable pricing, discounts, and payment terms.

Supplier Relations: Well-structured terms and conditions foster positive relationships with suppliers, enhancing collaboration and reliability.

Efficiency: Procurement software ensures that terms and conditions are consistently applied across all purchase orders, reducing manual effort and ensuring accuracy.

Streamlining the Order to Cash Process: Enhancing Efficiency and Revenue Growth

The Order to Cash (O2C) process is a fundamental business workflow that plays a pivotal role in the success of any organization. It encompasses the entire journey of a customer's order, from the initial request to the final payment receipt. This process is of paramount importance as it directly impacts revenue generation and customer satisfaction.

The O2C process typically involves several key steps:

1. Order Creation: It starts with a customer placing an order, through various sales channels or directly with the company.

2. Order Processing: Once received, the order is validated, and inventory availability is checked. Any necessary approvals are obtained, and the order is prepared for fulfillment.

3. Fulfillment: This phase involves picking, packing, and shipping the products or services to the customer. Accurate and efficient fulfillment is critical to meeting customer expectations.

4. Invoicing: An invoice is generated based on the order, detailing the products or services provided, their quantities, and the agreed-upon prices. This is a crucial step in revenue recognition.

5. Payment Processing: After receiving the invoice, the customer makes payment using their chosen method, which may include credit cards, checks, or online payment systems.

6. Cash Application: The received payments are matched with the corresponding invoices and applied to the customer's account. This step ensures accurate financial record-keeping.

7. Collections: In delayed payments or disputes, organizations may need to engage in collections activities to secure outstanding funds.

8. Reporting and Analysis: Throughout the O2C process, data is collected and analyzed to monitor performance, identify bottlenecks, and make informed decisions for process improvement.

Efficiency and accuracy in the O2C process are vital for maintaining cash flow, reducing operational costs, and fostering positive customer relationships. Automation, integrated software solutions, and data-driven insights are increasingly utilized to streamline and optimize this process.

How to Generate a Purchase Order 


At this point, you’re likely sold on the value of purchase orders. You know the benefits for your business and understand that getting a purchase order process in place now will make it easier to manage your business as it grows. Even if you use very few POs now, that is likely to change gradually over time. You may even experience rapid growth, in which case, you will thank yourself for simplifying the purchasing process early on. 

If you’re already experiencing that growth and are noticing issues with inventory management, order fulfillment, and tracking, now is the time to learn how to generate a purchase order. You have three basic options. 

Manual PO Generation 


You can create a purchase order manually, using any program already available to you. Some business owners are more comfortable with Word or another word processing program. Use the list of what’s included on a PO, which we presented earlier in this discussion. You can look at purchase order templates online to get an idea of the basic format. 

The problem with manual PO generation is that you have no simple way to store and track your orders. It also takes a lot more time to create the form than one of your other options, which we’ll discuss in a moment. 

Spreadsheet PO Generation 


Excel or another spreadsheet is another option if you want to create your PO manually. You can even use a template that automatically loads into Excel to make it faster and easier. Again, this system generates a PO but doesn’t give you a clear purchase order system with tracking for orders and inventory management. You can create that system on your own or use our final—and most highly recommended—option for generating purchase orders. 

Free PO Generator 


When you take advantage of purchasing software, you can take the work out of creating your purchasing system. We highly recommend the free PO Generator from ControlHub. It allows you to quickly fill in the blanks to provide important information to feature on the PO. You can then download a professional template in PDF format. 

This generator eliminates the time-consuming process of finding a suitable PO template online or playing with a spreadsheet or word processing program to get every field just right. You generate your template, download, and implement it into your purchasing process instantly. 

This generator is simply an efficient way to create a PO quickly. It doesn’t send the PO out for approval or offer any tracking capabilities. You need Purchase Order Automation for that, and we’re going to touch on that before leaving you to create your new purchase order process. 

Purchase Order Automation 


Automation refers to advanced technology that limits input and work from humans. We’re talking about digital applications that allow you to get more done in less time by allowing a computer to do a lot of the work for you. For instance, you no longer have to walk into your bank during operating hours to check your balance or withdraw cash. You just log onto your bank’s mobile app or drive through the ATM. 

The same concept is now applied to purchasing through advanced purchase order software. Purchase order automation allows software to do everything from generating professional and complete purchase orders to assigning PO numbers and sending POs for approval digitally. 

Imagine how much time you could save if you could fill out a PO, send it to others within your business for authorization, and then send it to a vendor through your computer or mobile phone. Automation software eliminates the messy paper trail, dramatically reducing the risk of lost purchase orders. It also speeds up the process so you can get more done in less time. 

Oh, and did we mention that automation software is much easier for your vendors and suppliers? They save time along with you. 

How Purchase Order Automation Works 


If you decide to create your purchase order system manually, you’ll spend time generating PO forms and then filling them out, printing, scanning, delivering each one by hand. The process may involve multiple people within your business, which means a lengthy process each time you need to send out a PO. 

Working with automated purchasing software eliminates all the manual work. Each step of the purchasing process is completed within the software. Each person involved in the process has access to the software, creating a smooth workflow that passes up the chain effortlessly and with far less risk of human error. We’re all prone to those, right? 

Here’s a quick breakdown of how the process works in general. The specifics will vary, depending on the software you implement. 

  1. You or another authorized company representative creates a PO within the software. They simply fill out the required information, including the target supplier or vendor. 
  2. The system to generates the completed PO form instantly. 
  3. The PO form is digitally reviewed and/or signed by all necessary parties within your business. 
  4. The system sends the PO directly to your vendor or supplier.  
  5. You receive notification that your vendor or supplier has signed the PO, making the purchase agreement binding. 
  6. You track your orders using their PO numbers, ensuring every step of the payment and fulfillment process is completed on time and in accordance with the agreement. 

Benefits of PO Automation Tools


Does it seem like there’s a software solution for everything these days? If so, why should you consider one more program like automated purchasing systems? There are some clear benefits for any e-commerce business, including but not limited to: 

  • You always know how much money you have committed to spend on current and future purchases. 
  • The purchasing process is simplified for employees at all levels. 
  • Everyone involved in the purchase process saves time by allowing the computer to do the work. 
  • Everything is saved in one organized place without messy stacks of paper or heavy fling cabinets. 
  • You can quickly pull up any PO to check its status or obtain needed information. 
  • Far less risk of costly or time-consuming errors. 

Frequently Asked Questions

Why do I need purchase orders for my online business?

Purchase orders are a critical element in running a successful online business. They ensure accurate orders, timely payments, and a clear record of your purchases. They also help with budgeting, forecasting, inventory tracking, and even scoring better deals from suppliers. Purchase orders provide legal protection and streamline operations, making them essential for any online business.

What exactly is a purchase order?

A purchase order is a document you create to communicate your purchasing needs to suppliers. It includes important details such as the products or services, prices, and specifications. It ensures that everyone is on the same page and helps streamline the purchasing process.

Do I really need purchase orders for my online store?

Yes, absolutely! Purchase orders are your secret weapon for seamless operations. They provide legal protection, simplify order tracking and inventory management, make audits easier, and keep your vendors organized. Purchase orders also make budgeting a breeze, giving you control over your expenses and ensuring transparency.

What are the different types of purchase orders?

There are different types of purchase orders to suit various situations. The most common types include:

  • Standard or single-use purchase orders: for one-time purchases.
  • Planned purchase orders: for ongoing agreements with vendors.
  • Blanket purchase orders: for open-ended or occasional orders.
  • Contract purchase orders: for creating binding contracts with other businesses.

Choose the purchase order type that best fits your online business's needs.

How can I generate a purchase order?

Generating a purchase order is easy! You can manually create them using programs like Word or Excel, but it can be time-consuming and prone to errors. Alternatively, you can use a free PO generator like the one from ControlHub. It provides a professional template in PDF format, making it quick and hassle-free.

What is purchase order automation?

Purchase order automation is the process of using software to streamline and automate the creation, approval, and transmission of purchase orders. It eliminates manual tasks, reduces errors, and saves time. With automation software, you can generate complete purchase orders, get digital approvals, and send them directly to your vendors, all from your computer or phone.

How does purchase order automation benefit my online business?

Purchase order automation keeps your finances in check, simplifies the purchasing process, saves time, organizes everything in one place, and minimizes errors. It improves efficiency, ensures accuracy, and keeps everyone involved in the loop. By automating your purchase orders, you'll have more time to focus on growing your online business and providing excellent service to your customers.

Purchase Order vs Invoice: Are they the same?

A purchase order is a commercialprocurement document that is created by a business’ purchasing department whenplacing an order with its vendors and/or suppliers. The document specifies thedetails on the desired items (type of goods, quantity, and price). An invoiceis a time-stamped commercial document that details and records a transactionbetween a buyer and a seller. If goods or services were purchased on credit,the invoice usually details the terms of the agreement and provides informationon the available payment methods.

What is an electronic purchase order?

An electronic purchase order is the same as a traditional purchase order, except that it is not placed on paper. It is a digital document that outlines the line items in an order, the terms and conditions both the buyer and seller must adhere to, pricing, delivery, and other information you'd expect to find on a PO.

What is a Purchase Requisition?

A purchase requisition form is aninternal document used by an employee to purchase goods or services on behalfof their company. These purchases may be for business operations (suchas office supplies), inventory, or manufacturing inputs.

What’s order time?

Order time or purchasing lead time starts when the goods or services are ordered and ends when they arereceived. This lead time includes availability confirmation, ordering,order acknowledgement, shipping notice, receipt of goods or service, invoice recordingand payment.

What is a Purchase Order book?

Purchase Order Book shows a summaryof all purchase orders. You can view a list of all the purchase orders untilthe date of last order entered.

What’s a PO system?

A purchase order (PO) system is an automated digital tool that creates numerous purchase agreements between your online store and manufacturers, distributors, or suppliers. This system simplifies how you order stock for your store, giving you simple concrete options for creating a purchase order to send to your supplier.

 If you are looking to step up your procurement game consider signing theservices of Control Hub, this software will cover many of your needs, including acting as a PO system for small businesses.

 

What’s the purpose of a Purchase Order?

A purchase order is a commercial procurement document that is created by a business purchasing department when placing an order with its vendors and/or suppliers. The document specifies the details on the desired items (type of goods, quantity, and price).

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