Purchase order is a document sent by the buyer to the vendor with the list of items that they would like to purchase. It includes the quantity, price, discounts, delivery location, and date.
Issuing a purchase order is beneficial for both the buyer and the seller. The buyer can keep track of all the items that are ordered, the expected delivery date, and the cost. The seller can use these purchase orders to identify whether they are fulfilled and also keep a clean audit of the transactions.
The life cycle of a purchase order
Stage 1: Identify items that need to be purchased from the vendors
Issuing a purchase order is beneficial for both the buyer and the seller. The buyer can keep track of all the items that are ordered, the expected delivery date, and the cost. The seller can use these purchase orders to identify whether they are fulfilled and also keep a clean audit of the transactions.
Stage 2: Create a purchase order and await approval
Once the items that need to be purchased are identified, it's time to send a purchase order to the vendor. Once sent, the vendor will then approve the order if it can be fulfilled. If not, the purchase order can be marked as canceled.
Stage 3: Receive Goods
If the purchase order is approved, it means you will get the products that you have ordered in the stipulated time. Along with the products, an invoice will also be issued by the vendor which has information about the list of products purchased and the amount that you (the buyer) owe to the vendor.
Stage 4: Convert to Bill
Once the items are received and an invoice is issued by the vendor, you can create a bill for those items. Based on the payment terms, the vendor will expect the money to be paid. For example, if the payment term is Net 60, then the vendor will expect payment within 60 days of issuing the invoice.
Stage 5: Record Payment
In order to complete the sale, the buyer has to pay the amount to the vendor within the stipulated time.