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What Is a Purchase Order?

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Using A Purchase Order Provides Peace Of Mind

Protect Your Operation And Maintain Order Accuracy

The obvious answer is that they’re for telling vendors what products you want to buy from them and in what quantities for an agreed-upon price. The not-so-obvious answer is that a purchase order is there to protect your operation by providing evidence of what was ordered in case something goes wrong along their supply chain.

If too few items are delivered or an order doesn’t show up at all, you can go back and check the purchase order, then use it to clear up discrepancies by getting a refund or getting the items you ordered. Using purchase orders effectively is a vital component to any successful farming operation.

A Purchase Order Creates A Legally Binding Contract

When a vendor accepts a purchase order, a legally binding contract is formed between the two parties. You should always clearly and explicitly communicate your requests to the vendor so there is no confusion when the purchase order is received.

Your operation drafts the purchase orders. Vendors, on the other hand, prepare invoices. Both the purchase order and the invoice contain similar details. The invoice generally references the purchase order number to confirm that both documents contain the same information and correspond to each other. The main difference between the two is in their use.   Tweet this

Provides Legal Clarity And Concrete Instructions

Many operations don’t use purchase orders because they perceive the paperwork to be a hassle that slows things down, or simply because they already have a working relationship with vendors.purchase order 2.jpeg

Once a business grows and the purchasing demands become more specific, urgent, and/or complex, communication challenges can arise if a purchase order isn’t used or certain details are not correct on the order.

If you receive an order and it does not comply with the desired specifications, it can be a nightmare for both parties to determine where the request went wrong. At that point it’s likely that both payment and an invoice were sent, which puts both parties in a significantly more complicated legal situation.

A purchase order provides legal clarity and concrete instructions for the vendor, as well as a tangible paper trail that can be used as a point of reference when things go wrong.

Helps Manage Employee Purchases

Using Purchase Orders can help manage employee purchases. Using purchase orders will allow for the most control and an awareness of where your employees are spending the company’s money. In addition, it gives your operation’s management team the ability to manage a budget for employee spending and the opportunity to take advantage of volume discounts on large orders.

This also means you can analyze how inputs and supplies are being used and identify opportunities for savings. Integrating purchase orders will significantly increase your ability to track expenses and remove a lot of headaches associated with employee/company purchasing.

Ensure Order Accuracy By Using A Purchase Order

Purchase orders are definitely something every farming operation should use when working with vendors to ensure accuracy in their orders. And when something does go wrong, you should have the purchase orders easily accessible in an Open/Pending Purchase Order File.

FamilyFarms Group

If you need some help, there are expert consultants at FamilyFarms Group. Our goal is not to take over in any of these areas, but to help you get a better handle on how to implement managing practices. Contact us today for additional information.

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Written By

Gary Huggins

Gary Huggins

Accounting Specialist

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