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What are purchase orders?
A purchase order is where a purchaser creates and sends an order to a vendor for goods or services. In a standard purchase order, the purchaser will, at a minimum, specify what products are being ordered, the quantity, the agreed price and delivery and payment terms.
A purchase order may arise out of a past order, an advertisement or offer by the vendor, or the parties’ negotiation as to the price and quantity. In this respect, a purchase order is a great way to concretely record what the purchaser and the vendor have agreed on. Purchase orders are essentially contractual offers. When a vendor chooses to accept a purchase order, that purchase order becomes the basis for a contract between the purchaser and the vendor.
The four main types of purchase orders
Standard purchase orders
A standard purchase order is typically used for irregular, infrequent or one-off procurement. As mentioned above, it contains a complete specification of the purchase, setting out the price, quantity and timeframes for payment and delivery.
A restaurant might raise a standard purchase order when it purchases new tables and chairs. If all goes well, this should be a one-off purchase for the restaurant, and the contract will be fulfilled once the chairs are delivered in good order.
Planned purchase orders
Like a standard purchase order, a planned purchase order is relatively comprehensive. A planned purchase order requires full details of the goods and services to be purchased and their costs. Dates for payment and delivery are also included in a planned purchase order, but these are treated as tentative dates. Issuing a release against the planned purchase order places individual orders.
For example, a restaurant might require 50,000 disposable placemats in one year – the manager could create a planned purchase order with a commercial printer detailing the price and quantity with a tentative delivery schedule. After using the first 5,000 placemats, the restaurant would create a release against the purchase order to order more.
Blanket purchase orders
A blanket purchase order involves a purchaser agreeing to purchase particular goods or services from a specific vendor, but not at any specific quantity. Pricing may or may not be confirmed in a blanket purchase order. This type of order is typically used for repetitive procurement of a specific set of items from a supplier such as basic materials and supplies.
In the restaurant example above, they could equally choose to use a blanket purchase order to procure the disposable placemats — not having to confirm a specific quantity may make this a preferable option if the quantity required is not clear.
Contract purchase orders
A contract purchase order sets out the vendor’s details and potentially also payment and delivery terms. The products to be purchased are not specified. A contract purchase order is used to create an agreement and terms of supply between a purchaser and vendor as the basis for an ongoing commercial relationship. To order a product, the purchaser may refer to the contract purchase order when raising a standard purchase order.
