Purchase Order Processing
A purchase order (PO) is a commercial document and first official offer issued by a buyer to a seller indicating types, quantities, and agreed prices for products or services. It is used to control the purchasing of products and services from external suppliers. Purchase orders can be an essential part of enterprise resource planning system orders.The issue of a purchase order does not itself form a contract. If no prior contract exists, then it is the acceptance of the order by the seller that forms a contract between the buyer and seller.
Companies use purchase orders for several reasons. Purchase orders allow buyers to clearly and explicitly communicate their intentions to sellers. They may also help a purchasing agent to manage incoming orders and pending orders. Sellers are also protected by POs in case of a buyer's refusal to pay for goods or services.
Purchase orders provide benefits in that they streamline the purchasing process to a standard procedure. There are various trade finance facilities that almost every financial institution allows business people to use against purchase orders such as:
- Before shipment credit facility
- Post shipment credit facility
- Trade finance facility
- Foreign bill purchase credit facility
- Bill retirement credit facility
- Order confirmation
The purpose of purchase orders is to procure materials for direct consumption or for stock, procure services, cover customer requirements using external resources, or procure a material that is needed in plants from an internal source (long-distance intra-plant stock transfers). They may also place once-only procurement transactions and optimize purchasing by taking full advantage of negotiated conditions or for optimal utilisation of existing transport capacities.
Creating a purchase order is typically the first step of the purchase to pay process in Manufacturing e-Suite. Purchase orders may require a SKU code/Description. Within e-Suite, a purchase order can be created manually, and may require confirmation or changes via editing.
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