Why is a purchase order important to a small business?

Purchase Orders are the sticky stuff that keeps your company together. They make sure you can track your orders and receive payments efficiently. When you use a purchase order you will find that each element included on it plays an important role and is geared toward a specific goal. It can be said that every single aspect of the purchase order makes your business flow together like a well-oiled machine or, better still, like a bride that fits into her wedding dress in time for the wedding.

What are the elements that make up a purchase order?

A Purchase Order (PO) creates a binding legal contract between the purchaser and the supplier. It gives you something in your hand which you can use to negotiate your terms and provides a reference document in case any disputes over the ordered goods arises in the future.

A PO includes the name of the company purchasing the goods or service, PO number, date, address, invoice address, the description and quantity of the goods or services, price, and payment information.

Click to Tweet: Efficient operations save time and cut costs where you need it.

How do these elements help my small business?

Including the name of the company purchasing the goods or service ensures that both parties know exactly who is involved in every purchase.

A PO number is a unique reference that enables the matching of purchases with what is ordered and what is delivered. The purchase order number makes it easier to track which purchases were made and the date by which the ordered goods were delivered. A PO number also ensures that your invoice gets processed as quickly as possible and it minimizes the risk of incorrect payments.

– The date is important as it is a record to both parties as to when the order was placed and when it was delivered.

– The addresses are important so that all correspondence and deliveries get sent to the
right place, preventing unnecessary delays.

– The description of the goods and the quantity are very important so ensure there are
No double or wrong purchases made.

– The price is always important as it states the exact cost of the goods or services being ordered.

– The payment information lets the purchaser know where exactly the money for the goods or services should be paid.

Small businesses need purchase orders

Purchase orders give you control over what is bought and paid for in your business; they are their own currency if you like. PO’s are the process used by your organization to manage its expenditure in a disciplined way. Every department has a role to play in spend happening in the business from the purchase order requester to the approver. If you conduct a thorough spend analysis of your business, you can identify gaps across your company spend and this is eliminated with a good purchase order system in place.

Efficient operations save time and cut costs where you need it. A good purchase order system also reduces internal fraud and leaves a trail to follow when fraud creeps in. Creating and keeping to budgets are easier to maintain and adaptable across all your departments.

When proper records are maintained for every transaction, it ensures that income and loss statements, profit and loss accounts and cash flow statements are that much more accurate.

“The things we fear most in organizations — fluctuations, disturbances,
imbalances — are the primary sources of creativity.”
Margaret J. Wheatley, Management

One of the biggest benefits of consolidating your purchase order process and using the same set of suppliers for purchases is discounted prices for bulk orders. A mobile procurement system minimizes internal bureaucratic forms and saves time.
How has using a Purchase Order system reduced costs on your construction site?

Originally posted: By Mullanie Mulder on Jul 03, 2017

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