Much of your project will be done in-house, but you’ll likely also contract with suppliers and others to deliver needed materials or services. How do you make sure that the goods are of the type you need, the quantity agreed upon and for the price that meets your financial constraints? These parameters are all agreed upon through a purchase order. It’s a way to reach an agreement about the outside services required in the project to make sure you can schedule them to fit into your project plan on track. Track your purchase orders from request to execution with ProjectManager.com’s kanban boards. Click to learn more! What Is a Purchase Order? A purchase order is a legally binding contract between a buyer and a seller that details what the buyer wants and the seller agrees to deliver. Those details include the price, quantity, date of delivery and terms of payment. Purchase orders also include a tracking number. Depending on what type of system you use, this is instrumental in tracking the purchase—from the time it’s placed to when it’s delivered and paid for. Why Use a Purchase Order? The purchase order makes exactly what a buyer wants from a seller clear. It helps to avoid any confusion in terms of what a buyer wants, how much of it, what the cost will be, when and where it’ll be delivered and so forth. The purchase order also serves to protect both the buyer and the seller. For example, if a buyer doesn’t pay as agreed upon in the order, or the seller doesn’t fulfill the details of the order, they can pursue legal avenues to get their money, goods or financial compensation. Of course, a lawsuit is not what any project manager wants. Therefore, the purchase order acts as a legal document to avoid any such disagreements by creating clear communication between both parties. Elements of a Purchase Order A purchase order varies in detail, but all share the following elements. A number to identify and track A date to capture when the order was agreed upon Vendor information, including the name of the vendor and their contact Buyer’s contact information Date the goods or services are due Shipping method, if the goods are being shipped to a job site Any requirements for shipping Items that are included in the order Payment Due Date Terms of Payment The total cost of the entire shipment Taxes for total items purchased Price for the entire shipment Terms for payment Your business might need further detail, which is fine, but if you have at least the above information in your purchase order, the owner and vendor are protected by contract. Therefore, to legally protect all parties, it’s critical that all the details of the transaction are clearly stated and agreed upon. Purchase Order Process The process of a purchase order includes writing it up through to delivery. The process breaks down into these steps: Creation Once a purchase requisition has been made, the purchase order is generated, usually by the procurement team or an administrator to the project. Approval If everyone involved is in agreement to the items, quantity, price and delivery requirements, the document is approved by the signature of the vendor agreeing to the terms. Dispatch The purchase order is sent to the vendor through whatever channel has been accepted. This can be done in person, by paper, sent by fax or email, etc. Delivery The vendor delivers the goods outlined in the purchase order. Those goods are examined and approved when the quality is acceptable, such as no defects or missing items. This is usually done by an administrator or procurement manager on the job site. Closure If everything is fine with the order an approval invoice is sent to financing for payment processing. Once paid, the purchase order is closed. A Purchase Order Example Let’s take a look at a theoretical purchase order example to get a real-world view of how this process works. To do so, we’ll use ProjectManager.com’s purchase order template, which you can download for free here. Imagine a construction job, where Acme Construction realizes they need more particle boards. They contact their vendor, Joe’s Lumber, and discuss the order over the phone. Coming to an agreement about price and delivery, Acme writes up a purchase order. They include their company name and contact information, create a PO number, date and vendor ID for Joe’s. Vendor Contact Info The next part of the purchase order is the contact info for the vendor, or who Acme is making the purchase from. This is followed by where the goods will be shipped, in this case, the job site. The approved delivery date is noted and the method of shipping, which in this case is by truck. Payment Details What follows are details about payment, when it’s due and if there are any terms. In this case, the payment is due upon delivery and only after the contact person listed in the shipping information has looked over and approved the wood. Line Item Information There’s a list of the goods, showing the item, describing it, the quantity, quoting the unit price and then a line total. For this order, there is only one line item, but there can be several. However many there are, they are totaled after the taxes for the purchase are added. Additional Info There is a box in which any additional information can be added. This might be how to reach the job site, how the goods need to be packed, etc. For this job there is no need for additional information, and the box can be left blank. Signature Finally, there’s a place for the signature of the vendor and the date on which the purchase order is signed. Once signed, this becomes a legally binding contract. How ProjectManager.com Can Help With Purchase Order Process ProjectManager.com is an award-winning tool that organizes work for greater efficiency. Using our software to streamline your purchase order process allows you to generate, track and close your purchase orders easier so you don’t have to get pulled away from managing the project. One of our project views is the kanban board, which visualizes workflow. The board is a series of columns with cards stacked underneath that can be dragged and dropped from one column to the next as they move through the purchase order process. Once you have a procurement need, you can use the customizable columns to outline your five-step purchase order process. Create a card to represent the purchase order. Attach the actual purchase order to the card and move it across the board as it is approved, delivered and closed. Your procurement can be tracked at a glance to make sure it’s delivered on time by creating a due date on the card. Add tags to designate it to a department or project and make it easy to find in a search. You can even assign the card to your procurement manager and comment to keep the lines of communications open. ProjectManager.com is an award-winning tool that helps you stay organized to improve productivity. It can manage your purchasing, planning, monitoring and reporting on projects. Join organizations from NASA to the Bank of America, which already use our tool to run successful projects. Try this free 30-day trial offer today. Cost Estimation for Projects: How to Estimate Accurately 11 Must-Have Project Management Excel Templates 5 Tips for Better Resource Scheduling Purchase Order Template