What is a Purchase Order?

A purchase order is a written authorization from a buyer to acquire goods or services. The document authorizes a supplier to deliver to the buyer at the price, quality level, delivery date, and certain other terms specified in the agreement. A purchase order is legally binding after the supplier counter-signs it.

Master Purchase Orders

A purchase order is time-consuming to create. To reduce the workload, some organizations issue a master purchase order to each supplier, authorizing considerably more than is initially needed, and then issue releases against the master purchase order, as needed. To save time, many purchase orders are now delivered in electronic format over the Internet.

Disadvantages of Purchase Orders

Despite their common usage, there are a few problems associated with purchase orders, which are as follows:

Time required. The development of a purchase order can be a time-consuming process, especially when it is assembled manually. As such, it can significantly impede the purchasing process within a business.
Preparation cost. Purchase orders are prepared by employees of the purchasing department, so there is a labor cost associated with them. This can be substantial when there are a number of details to be included on the document.
Non-value-added. The preparation of purchase orders does not increase the value of the items purchased, and so can be classified as non-value-added.

Given these issues, purchase orders are usually restricted to higher-value purchases.