Many small businesses put their accounting practices in place as they go – often as the result of a problem or issue they have had with a customer or a supplier. No matter what size your business is, good process can help both to make you more efficient, and improve your cash flow. Using purchase orders is a key business process and, whether managed internally or by a virtual bookkeeping service, can help keep your finances on track.
What is a purchase order?
A purchase order – more usually referred to as a PO – is a legally binding document that is issued at the point of agreement to buy. It sets out key information about the purchase, and the buyer signs it either individually or on behalf of their company, to confirm that they want to buy the stated goods or services at the stated price.
Purchase orders should be an essential element of basic bookkeeping for a small business. They help you to track orders, and produce legally binding evidence of commitment to purchase should anything go wrong. It’s not difficult to set up a PO system – if you have any business bookkeeping help, you are probably already working with someone who can sort this out for you – and it will help to make your processes more efficient and your accounts easier to manage.
Essential elements of a purchase order
Most purchase orders today are electronic. If you are buying from others, you can create a template which is filled in for each purchase and then sent to your supplier for their completion and signature. You can ask your supplier to print off and sign the purchase order before scanning and sending back to you, or you can accept an electronic signature. Your purchase order should, at its most basic, include:
- The purchase order number – this is a unique number that allows both parties to trace the order. You generate the number, and you can also add any reference that your supplier uses, if appropriate.
- Your address and company details – your registered office details should be clear on the PO, although if you operate from a different address, this is likely to be the main address you use. Include all your contact details including phone and email.
- Order details – the full details of the order as agreed with your supplier. If appropriate, issue a line-by-line order with relevant quantities and costs and then a total cost at the end of the list. If you need to add VAT, delivery or other services charges, and you know them, make sure they are clear here.
- Billing instructions – give your supplier the information they need to invoice you at the appropriate time. Include your standard payment terms.
- Any additional details – for example if delivery is to be made to a different address to your registered address.
- Signature – this is to ensure that you have legally authorised the purchase on behalf of your business
When you start using purchase orders, you can ask someone offering bookkeeping services for small businesses to help you set up a template, and to manage your everyday accounts so that you know your processes are efficient and running smoothly.
Single PO vs blanket PO
Depending on your business, you may issue a single PO, or a blanket PO or a combination of the two. A single PO is used whenever you have a new order, and helps you and the supplier to keep track of the order. If you are ordering an ongoing supply, however, you may issue a blanket PO. This covers the entire supply – so a certain number of products per month for 12 months, for example.
Better accounting practices
Using a purchase order system is ideal whether you are managing your own accounts or have outsourced to freelance or virtual bookkeeping services. It will help you to see when payments will need to be made, helping you to manage cashflow. If you use an accounting package, there will almost certainly be the option to generate purchase orders, making it easy to implement and ensuring that your POs are automatically accounted for within your system.
If you’re short on time and need help with virtual bookkeeping and managing accounting processes, feel free to call us on 0800 994 9016 or use our contact form in the menu above.