Chapter 2

What is a Purchase Order Template

Resources / What is a Purchase Order Template

Some business owners see purchase orders (POs) as unnecessary burdens and instead rely on verbal agreements. This isn’t a great idea. In fact, purchase orders are crucial pieces of documentation. They help to avoid incidences of wrong orders (an error that can creep in easily, especially if more than one person is in charge of making purchases) and know your best and worst suppliers. Also, they’re required for some financial audits. 

Purchase orders can also help businesses avoid surprise price increases – when a supplier changes prices between the order date and date of delivery. With a purchase order, each party can see the price that’s been agreed so there are no areas of miscommunication. Purchase orders help buyers and sellers see every detail laid out and documented, ensuring clear lines of communication. 

While they are important documents, it’s easy to see why some businesses find purchase orders tiresome. They take time and effort to create and track, which could be spent on other business-critical processes. That’s why, as part of their retail software stack, many companies are now fully automating the purchase order process This streamlines that process, saves precious hours, eliminates inconsistencies and provides insights on your suppliers. 

The first step in automating the process is to create a purchase order template that contains all the details needed to approve and pay for the order when the time comes. 

The purchase order process:

  1. A PO is raised by a buyer
  2. The purchase order is approved by the relevant people at the buyer’s end
  3. The purchase order is sent to the seller
  4. The purchase order is accepted by the vendor
  5. Goods or services are fulfilled
  6. Invoices are issued and settled
purchase order flow

Read on to find out more about how to create purchase order templates that you can use to automate your PO processes and boost efficiencies across your company. 

Purchase Order Definition

A purchase order (PO) is a business document that’s initiated by a buyer and sent to a seller. It contains a summary of the products or services (as well as the price) that a buyer will purchase from a seller. So that there’s no confusion it’s essential that a buyer is explicit about what their requests are – so the seller completely understands what’s expected. 

Businesses use purchase orders to communicate what a buyer wants from a seller. It can also relay how orders and shipment should be handled, as well as provide an official record ( or contract) to protect both buyers and sellers should there be any problems with payment or delivery. Purchase orders systems are extremely important where multiple parties are overseeing handling of purchases, inventory, and accounts. 

The Difference Between Purchase Orders and Invoices 

People often confuse purchase orders with invoices. They’re both essential features of inventory management, but in fact they’re quite different. Invoices are produced by sellers after items are delivered, whereas a purchase order is created by a buyer regarding requisitions – before any items are delivered or services are rendered.

A purchase order (PO) is an official order form that a buyer completes in order to communicate the specific services or products they are agreeing to purchase from a seller. The purchase order will include descriptions, quantities, expected dates and prices. When a seller accepts a purchase order this becomes a legally binding agreement between both parties. A purchase order is not a request for payment. 

The seller creates an invoice (often using an invoice template) as either receipt for payment already received or to request payment.The invoice is created by a seller to bill clients and customers for products and services. The sales invoice should include the purchase order number as a reference. 

When products are shipped, sellers should include a packing slip and this should also include the PO number, as well as the invoice and item number.

How do you Format a Purchase Order?

While there’s no absolute rule for formatting a purchase order, the following format can be used as a general guideline:

  1. Header: Where you provide your company information, including company name, address, the purchase order date, and purchase order numbers.
  2. Supplier information: This is where you indicate the proper recipient for the purchase order, including your specific contact name and address of the vendor.
  3. Ship to: Next, specify where the order should be sent, the shipping method, the shipping terms, and intended delivery date.
  4. The order details: For each product in the order, provide a line item with the product code or SKU, item name, and description. Also include the quantity of items required, price per unit, and delivery date of each unit.
  5. Summarize: The purchase order form should be completed by providing a subtotal, any applicable vendor discounts, shipping costs, taxes, and finally, the grand total.

Purchase orders are usually submitted in duplicate with one purchase order going to the seller and another to the buyer’s accounts payable department. The buyer keeps a copy so they can match it with the invoice when that arrives from the seller. 

Elements of a purchase order template

Creating a purchase order template offers a host of advantages – convenience being chief among them, so that users spend less time entering supplier information and addresses. A standardized purchase order needs to have all the following details: 

  • Purchase order issue date
  • Company logo 
  • Point of contact information
  • Name and billing address of the buyer and seller – plus telephone/fax/emails 
  • Purchase order number
  • Item numbers
  • Shipping method, terms, and date of delivery
  • Product/service details (including unit price, quantity, description, SKUs, etc.)
  • Line totals (subtotals) plus any discounts
  • Terms & conditions for the transaction

Types of Purchase Orders

Not all purchase orders are created equal. In fact, there are essentially four types of purchase orders:

1. Standard purchase order

This is the most widely used type of purchase order, and includes the items to be purchased, quantities, terms of payment, and delivery date. Standard purchase orders are generally used for one-off purchases. 

An example of a standard purchase order could be when a company agrees to buy 15 reams of paper at $3 each to be delivered in two weeks, with payment due within 30 days of delivery. An example of a standard purchase order can be found below:

Image: Hubspot

2. Blanket purchase order

A blanket purchase order incorporates multiple potential orders into one order, usually to negotiate discounted pricing. With this type of PO, the items and total quantity are typically outlined – with or without pricing included. 

If pricing is included it could include price discounts offered by a seller. For example, a company may decide to buy x reams of paper, but they’re not sure when or how often they will need to order. 

In this scenario, a company might issue a blanket purchase order to initiate the purchasing process.

Image: Hubspot

3. Contract purchase order

This is the most formal variation of a purchase order, and offers the most legal protection. A contract purchase order is issued when a buyer doesn’t know which item or items are to be ordered. Instead, terms and conditions are agreed with the seller – with the understanding that items and quantities will be defined in future. 

This type of purchase order is more like a ‘binding agreement’ that a buyer will purchase from you in future. The time is often set for a year in advance, and contract purchase orders act like legal documents. During the contract period, a buyer can send in standard purchase orders that include all the relevant details required for each purchase. 

Image: Hubspot

4. Planned purchase order

When placing a planned purchase order, a buyer estimates their future needs and submits the PO in advance. 

In this type of purchase order, most of the order details are known, including the item, price, and payment terms. However delivery dates are typically unknown. The buyer is committing to the price and quantity, but not to a delivery schedule. 

For example, if a company knows they are going to buy three new printers at an agreed price. Later, once the delivery schedule is known, standard purchase orders can be created.

Image: Hubspot

How do I Create a Purchase Order Form?

1. Creating an order form using Excel

Creating a purchase order for Excel is relatively simple and inexpensive. It does not require special software and if you already use Excel, you can simply download a purchase order template and customize it to create purchase order forms with your own contact and shipping cost information. Below is a purchase order template for use with Excel 2007 and later versions.

To create this purchase order you need to:

  1. Customize by adding your company name, contact, and shipping information
  2. Add seller’s contact information in the Vendor section
  3. Save a backup copy (maybe a separate copy for each major vendor)
  4. Save a printable copy for your archives

The spreadsheet can be printed as a PDF file or emailed to a vendor. Purchase orders can also be imported into Brightpearl from an Excel spreadsheet. Firstly, the supplier must already exist in Brightpearl. The imported orders will be matched to the supplier using an email address. 

2. Creating an order form using Google Sheets

Creating a purchase order form in Google Sheets means you can manage your purchase order data from anywhere, anytime. All you need is an internet connection – plus Google Sheets integrates with lots of other software packages (including Brightpearl), so it’s easy to import and export data and create printables (PDF files) while keeping things centralized in Google Sheets.

To create an order form in Google Sheets: 

  1. Go to ‘Sheets’ and click ‘Template Gallery’. 
  2. Navigate to ‘Work’, then choose ‘Purchase Order’ from the drop-down menu.
  3. All you need to do is fill in the details – e.g. company name and address – as required. Make sure you update the item number, name, and unit prices. 

When you choose the quantity for your products, the other fields automatically update based on the unit price. 

TIP: If you need extra rows:

  • Enter the product and price details 
  • In the ‘Total Price’ section type = product (F[row number]:G[row number] to automate the calculation. 
  • Insert the appropriate row number where it says [row number].
  • The rest of the sheet will update automatically.

3. Creating an order form using Word

You can create a purchase order in minutes using Word, by following these steps:

  1. Open a Microsoft Word document and click the MS Office icon at the top left corner of the screen.
  2. From the dropdown menu, choose ‘new’, and a list of template options will appear. Choose ‘Purchase Orders’.
  3. Choose the format from the different categories and types of purchase order templates to suit your business, then click ‘download’.
  4. The template will be in the form of a table with rows and columns. You’ll need to make them visible in order to add the necessary information. Go to Table Tools and choose the design tab. Choose borders and pick ‘view grid lines’. 
  5. You can now add your company logo, slogans, and other details by clicking on the different areas defined by the grid line. You can also adjust images and icons using placeborders at the corners of images. 

Purchase Order Templates Examples

Here are some free purchase order templates that can be customized to suit your organization:

Image: Templatelab

How to Automate PO Creation 

Manually creating purchase orders is long and complex, and requires a great deal of ‘back and forth’ workflow. It’s easy to lose information or fail to keep track of orders and suppliers. Given this, it’s surprising how many companies are still generating POs manually – or at least semi-manually.

Managing procurement effectively is critical for all businesses. Without consistent processes in place, you run the risk of making costly purchasing mistakes. Companies that move towards purchase order automation software are reaping a host of benefits from implementing a centralized digital purchase order system. 

Benefits of purchase order automation

By automating the purchase order process you can: 

  • Reduce human error: Even the best employees have ‘off’ days, so errors are bound to creep in when entering information manually.
  • Save time: Manual processing of POs is time-consuming and tiresome. Communication is also accelerated with automation. With manual processing, there can be a lag of days or weeks as internal staff discuss procurement issues. When one email goes unanswered the whole process can grind to a halt. A digital procurement system has built-in communication processes, reminders, and alerts to keep channels of communication running smoothly.
  • Save money: With automation, you can store all your vendors’ information in one place so there’s no need to spend time searching for form information. You can customize and automate the purchase order creation process for SKUs and categories. 
  • No need to fax or email: Orders are sent instantly and a copy is automatically saved.
  • Increased security: Filing cabinets aren’t the best place to store sensitive information. Automated systems keep records safer, and can be set up so only those with permissions can access them. 
  • Less waste: Less paper saves money and helps the environment – improving your green credentials.

The benefits are clear, but:

How exactly do you go about automating PO creation? 

The larger your organization, the more important it is that you have a fully automated purchase order system. But it will pay to do your homework before rushing in and adopting such a crucial system for your organization. 

Planning is key. Here are some steps to take when you’re implementing automated PO creation:

  • Remember to keep all your purchasing team in the loop, because they’ll have insights into what works and what doesn’t. They‘ll also be the ones working with the new system so they need to be onboard with the latest tools. 
  • Define your purchasing policy. A good PO system enforces this policy, but it’s important you outline what that policy is going to be. 
  • Define your company’s position on: The role of purchasing, how you determine which suppliers to use, buyer/seller relationships, which categories will require purchase orders, which employees should have purchasing permissions.

Then, you can set about finding the right automated, digital PO system. 

Brightpearl’s Digital Operations Platform provides you with a flexible, integrated replenishment and purchasing system that helps you build relationships with suppliers. Vendors can acknowledge your POs and automatically convert them into accurate invoices that can integrate with your accounting system. 

That way, it’s easier for the accounts payable (AP) department  to manage those payments. 

Using the PO and invoice, the receiving department can ensure you’re only receiving items that have been ordered. If goods aren’t received or the wrong product is delivered, this is quickly identified – so invoices aren’t simply paid blindly or left sitting too long.

Having automated purchasing functionality combined with Brightpearl’s data-driven inventory demand planning, you can easily identify the top items to be replenished and directly create POs within seconds. 

If you’re a business looking for the best online retail system to help you upgrade your procurement processing, Brightpearl could be the answer. Brightpearl incorporates a host of retail software features designed to help boost the efficiency of your workflows – including a fully integrated purchase order and supplier management system. 

Included is the option to automate your purchase order creation for certain SKUs, categories, brands, or for dropshipping items.

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