There are four types of purchase orders that businesses can choose from. In this post, we’ll go through each type and when to use them. Purchase orders help businesses to keep track of what they’ve purchased, making them a critical part of record keeping. In addition, they keep track of cash flow, by providing an easy way to know what is to be paid and when. Purchase orders are important for tracking stock levels since they track the number of products and when they will be delivered.
Standard purchase order (SPO)
The most common sort of purchase order is the standard purchase order. Businesses use them for one-time orders that they do not intend on making regularly. Standard purchase orders are the simplest to understand as they are the most basic type of purchase order.
An SPO typically includes:
- Terms and conditions of the order
- The products to be purchased
- The quantity of each item
- The cost of each item
- Each item’s delivery date (or the delivery date for the entire PO)
- Each item’s delivery location (or the delivery location for the entire PO)
Blanket purchase order (BPO)
Blanket purchase orders are recurring purchase orders. They include the supplies, commodities, and services that your business needs daily. For example, BPOs can cover raw supplies for manufacturing, cleaning services, or catering for the business break area.
You can use a BPO to detail:
- The time covered by the BPO
- Delivery schedules
- Custom quality requirements
- A budget
- Terms of payment based on a negotiated, fixed price or a recurring periodic price
- Bulk discounts and other advantageous contract conditions
- Cancellation fees
Planned purchase order (PPO)
PPOs are similar to SPOs, but they are used when the delivery date is uncertain.
PPOs are used when;
- The goods/services are to be delivered in the future
- Suppliers and buyers are working together to create a preliminary agreement for continued orders
- There is a flexible delivery timetable based on when the business expects to reorder
- Delivery dates can be changed at a later time. For example, the PPO may be written up for 600 products with no specified delivery date and then changed to have 200 things delivered once a month
Contract purchase orders (CPO)
The most complicated of the four types of purchase orders is the contact purchase order (CPO). They are purchase agreements used to establish the terms and conditions for future transactions.
A CPO only includes a collection of negotiated and confirmed terms and conditions from which future purchase orders can be produced.
A CPO does not include :
- The list of products to be purchased
- The number of each item
- The cost of each item
- Each item’s delivery date (or for the entire PO)
- Each item’s delivery location (or for the entire PO)