Purchase Order

- Purpose
 

A Purchase Order (PO) is a formal internal and external procurement document used by a company to request goods or services from a supplier or vendor.
 

It acts as:
 

• A legal intent to purchase

• A binding agreement once accepted by the supplier

• A control document for procurement, inventory, and accounting
   

A Purchase Order defines what will be bought, from whom, at what price, under which terms, and when delivery is expected.

A Purchase Order is not a payment document and does not represent an expense payment by itself.


 

- When to Use a Purchase Order
 

Use a Purchase Order when:
 

• Buying goods or services from suppliers

• Controlling procurement approvals

• Locking prices before delivery

• Managing inventory inflow

• Ensuring vendor accountability

• Tracking expected expenses

• Matching invoices later (3-way matching)
   

Common industries:

• Manufacturing

• Retail & wholesale

• Construction

• Logistics

• Hospitality

• IT & services

• Corporate procurement departments
  
  
   

  - How to Use – Step-by-Step (User Flow)
   

  1️⃣ Create Purchase Order
   

  Navigate to Documents → Orders → Purchase Orders

  Click Add Purchase Order

  Select or create:

• Supplier (vendor)

• Company / organization

• Document language

• Currency
  
  
   

  2️⃣ Supplier & Procurement Details
   

  Define supplier-specific information:
   

• Supplier name

• Contact person

• Add internal procurement references:

• Requester / department

• Cost center

• Internal PO reference

• Approval authority
  
  
   

  3️⃣ Add Items to Be Purchased
   

  Add each item or service with full clarity:
   

• Product or service name

• Detailed description

•  These values represent expected costs, not payments.
  
  
   

  4️⃣ Pricing & Cost Summary
   

  Purchase Orders provide cost commitment visibility:
   

• Subtotal

• Discounts

• ⚠️ These totals do not post accounting entries until invoice is received.
  
  
   

  5️⃣ Delivery & Fulfillment Terms
   

  Specify procurement logistics:
   

• Delivery address (warehouse / site)

• Delivery method

• This ensures:
  
  ✔ Supplier clarity
  ✔ Fewer disputes
  ✔ Smooth inventory intake
  
  
   

  6️⃣ Terms & Conditions
   

  Define commercial and legal terms:
   

• Payment terms (Net 30, Net 60, etc.)

• Invoice submission requirements

• Penalties or delays

• Warranty clauses

• Cancellation rules

• Inspection & acceptance conditions
  
   

  7️⃣ Save & Approve Purchase Order
   

  On save:
   

• PO number is generated

• Status set to Draft / Pending Approval

• On approval:

• PO becomes official

• Can be sent to supplier

• Procurement commitment is locked
  
  
   

  - Purchase Order PDF
   

  A professional Purchase Order PDF is generated automatically.
   

  The PDF includes:
   

• Company details

• Supplier details

• Used for:

• Supplier confirmation

• Contractual reference

• Internal audits
  
  
   

  - Payment Behavior (Important)

  Purchase Orders do NOT handle payments.

  ❌ No payment methods
  ❌ No receipts
  ❌ No direct expense posting
  ❌ No tax reporting

  Payments occur after supplier invoice is received and approved.
  
  
   

  - Relationship with Other Documents
   

  - Purchase Order → GR/IR → Supplier Invoice
  
  
  
  Purchase Order
        ↓
  Goods Receipt (GR / IR)
        ↓
  Supplier Invoice
        ↓
  Payment
  
  
  This is known as 3-Way Matching:
  
  ✔ PO (what was ordered)
  ✔ GR/IR (what was received)
  ✔ Invoice (what is billed)
  
  
   

  - Purchase Order → GR/IR (Partial)
   

• Multiple GR/IR records can reference one PO

• Supports partial deliveries

• Remaining quantities tracked
  
   

  - Purchase Order → Accounting
   

  Once supplier invoice is approved:
   

• Expense is recorded

• Payable is created

• Payment can be processed
  
   

  - Conversion & Linking
   

  Purchase Orders can be:
   

• Linked to GR/IR documents

• Linked to supplier invoices

• This ensures:
  
  ✔ No over-billing
  ✔ Accurate expense control
  ✔ Full procurement traceability
  
   

  - API Support
   

  Purchase Orders are fully supported via API.
   

  API Capabilities
   

• Create Purchase Order

• Update PO items & quantities

• Fetch PO list & details

• Generate PO PDF

• Link GR/IR to PO

• Track fulfillment status
  
   

  API Use Cases
   

• ERP integrations

• Inventory systems

• Supplier portals

• Automated procurement workflows
  
  
   

  ⚙️ Settings Affecting Purchase Orders
   

  Procurement Settings
   

• Approval workflows

• PO numbering format

• Mandatory fields

• Department / cost center mapping
  
   

  Template Settings
   

• Supplier-friendly layout

• Item description length

• Signature blocks

• Custom legal clauses
  
  
   

  Inventory Settings
   

• Quantity tracking

• Partial receipt support

• Warehouse linking
  
  
   

  ✅ Benefits of Purchase Orders
   

  ✔ Controls supplier spending
  ✔ Prevents unauthorized purchases
  ✔ Locks pricing before delivery
  ✔ Enables 3-way matching
  ✔ Improves inventory planning
  ✔ Reduces billing errors
  ✔ Strengthens vendor accountability
  ✔ Fully API-automatable
  
  
   

  - Summary
   

  A Purchase Order is the foundation of structured procurement.
   

  It ensures:
   

• Clear supplier communication

• Controlled spending

• By separating ordering, receiving, invoicing, and payment, Purchase Orders help businesses stay organized, compliant, and cost-efficient.