A Smorgasbord of Purchase Orders..Are You Using The Right One?

Any purchase is an expense incurred to your business. Being accountable for all of them, it is important to know how much profit you make. Purchase orders allow you to track your expenses and makes it easy for accounting to report on.  Purchase orders need to be issued for all purchases, from coffee filters to materials needed for the actual manufacturing of a product. It is a legally binding document that confirms to you and the supplier what is needed, when it’s needed and at what price. And with purchase orders, you will be able to give a detailed account of what has been spent within budgets.

That is all fine and dandy, however there are different types of purchase orders, and when and how you use them, will be determined by the type of business you have.

Standard Purchase Order

  • A standard purchase order is a legally binding document between a supplier and a buyer.
  • It details the items the buyer agreed upon at a certain price point.
  • It also outlines the delivery date and terms of payment for the buyer.
  • Simple purchase order software systems, such as have made the purchasing process more efficient and allow for better inventory and payment tracking. It is the basic instrument for making single instance purchases.
  • The standard purchase order type is mainly used to purchase supplies and equipment and is the most commonly used purchase order type.

Blanket Purchase Orders

  • This type of purchase order reconciles repetitive small purchases form a single supplier.
  • It is an open account but only certain things are allowed to be ordered, certain individuals are allowed to place the orders, there is a time limit on the period which it is to be open and the total amount which can be ordered.
  • When a blanket purchase order is created you are not sure about the quantity, price and required delivery schedule. Some departments in companies and institutions use blanket purchase orders as a kind of petty cash, used to make routine purchases of smaller office items.

Standing Purchase Order

  • Use for purchases that don’t require quantity and unit prices.  
  • The money being made available for the transaction will be restricted. This might be useful in instances where there will be more that one payment made that is not specifically known up front. For example, a purchase order for consulting services where periodic invoices will differ.  
  • Payments will be applied to the overall purchase order amount.
  • A fixed asset account may not be assigned to a standing order.  Fixed assets need to have a quantity and amount per piece of merchandise and standing orders do not use quantities.  
  • An error message will occur if a fixed asset account is attempted on a standing order.
  • Special purchase order forms are used for regularly recurring needs, like a scheduled delivery cycle for common office items like toilet paper or staplers.
  • A standing purchase order will thus remain active over time, approving each month the same delivery interval and agreed-upon price. Standing purchase orders should always have a built-in expiration clock in which they must be renewed or rewritten.

Planned Purchase Order

  • This type of purchase order is created when the required delivery schedules are uncertain.
  • Although other details such as the item, price, delivery schedule and payment terms are established.
  • In the planned purchase order window you have to enter a Need-By date, but it will be treated only as a tentative date. The exact date on which the shipments are to be delivered is informed to the Supplier by creating Schedule Releases against the planned purchase order.

Contract Purchase Agreement

  • This is created when the item to be purchased is not known to you.
  • The only information provided in a contract purchase agreement is supplier, supplier site, payment terms and agreement control details.
  • Standard purchase orders are created by referring to the contract purchase agreement when something is to be purchased against this contract purchase agreement. The contractual purchase order forms, on the other hand, are almost always used to describe specific work on an individual project.
  • The contract purchase order will specify which work is being done, what time it will be performed, and what costs are involved.
  • Some contract purchase orders specify milestone or periodic payments to keep everything balanced.

As a matter of course, sometimes the project will need re-adjusting halfway through the implementation period, and a change purchase order may be issued to the original contract purchase order.

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