If your business needs to purchase goods or services, you need a way to track those orders.
You can do this using an ordering system.
Not sure what a purchase order (PO) is and how a system that manages it will benefit your business?
This article will help you answer these questions.
Here’s what we cover:
What is an order?
A purchase order (also called PO) represents a buyer’s intention to purchase a specific quantity of a product or service from a supplier at an agreed upon price.
It is a legally binding document.
Here’s what you’ll typically find on an order:
- Order number
- Order date
- Buyer’s address
- Supplier address
- Product/service list and prices
- Payment terms
How can an ordering system help me?
Setting up an ordering system can be beneficial for your business.
From ensuring the right information gets to your suppliers to keeping track of your inventory, it makes sense to have a system that runs smoothly.
Using an ordering system also saves you time and money.
6 Benefits of Using an Ordering System
1. Get orders right the first time
Sending an order to your supplier is a legal offer to purchase their products or services.
When your supplier accepts the order, a contract is usually concluded between you and your supplier. No contract is concluded until you have accepted the order.
Orders provide accurate documentation of the order in the event of a dispute.
An order lists the item description, quantity, price, discounts, delivery instructions if applicable and the order date. This leaves less room for error than a verbal order.
When it comes to processing payments, it is helpful to ensure that the information on the order is correct.
2. Manage projects and purchases
An ordering system determines costs in advance before a job begins. An order can be made for a single project or multiple projects at the same time.
When goods or services are ordered for a project, the project reference should be applied to the order to link the ordered goods to the project.
This automates the allocation of inventory and the application of costs to the project at each stage of the order lifecycle. A good ordering system starts with tight order offers.
If you want accurate orders, you must calculate actual order quantities and determine costs before a project begins.
3. Save your employees time
If your suppliers send an invoice that references your order number, your employees don’t have to check whether the invoice is legitimate.
The contract that comes into existence when your supplier accepts your order resolves any disputes.
The PO process has already ensured that it is legitimate and proper billing should be easy.
The invoice is entered into your accounting system with reference to your original order, the delivery is recorded and your inventory levels are seamlessly updated.
4. Enable you to do business with the government and local authorities
Many government agencies and agencies only pay invoices upon receipt of a valid order.
If you fail to do this, you will limit your business opportunities in the future.
A company that creates orders suggests that it has control of its finances and cash flow, which leads to more trust over companies without this system.
5. Help optimize your inventory
An effective ordering system shows you your financial commitment to inventory.
Current inventory, deferred inventory, backorder quantities, and free inventory are all areas that many companies have no clarity or control over, which can lead to inventory shortages.
Placing orders gives you insight into all of these areas, as well as the cost and selling prices, so you can see the profit margins on your products.
6. Discover your super suppliers
Many companies don’t know who their best suppliers are.
Who do they order most of their products from?
How much did previous products cost and should they receive preferential discounts?
Final thoughts
These are just some of the questions that many companies leave unanswered.
A good ordering system leaves none of these questions unanswered, ensuring business control and clarity.
Do you use a PO system for your business and does it help you manage your processes? Share your stories with us in the comments below.