What is a Purchase Order (PO)? Purchase Order, its contents and process.

What is a Purchase Order (PO)?

A Purchase Order (PO), commonly referred to in Vietnamese as an order form or purchase order, is a document issued by the buyer to the supplier to order goods or services under specified conditions.

For example, Company A orders 100 monitors from Supplier B. The purchase order (PO) can include the PO number, product code, quantity (100 units), unit price, delivery address, expected delivery date, and payment terms. This provides a common basis for tracking the transaction for the purchasing, warehousing, accounting, and supplier departments.

Who created the purchase order?

Normally, The buyer is the party that creates and issues the purchase order (PO).. The purchasing need may start from an internal request, which is then approved and forwarded to the purchasing department to create a purchase order (PO) to send to the supplier.

What is a PO Number?

The PO Number is the number or code that identifies the order. This code helps businesses track transactions and link purchase orders (POs) to receiving data, invoices, payments, or records on their ERP system.

What information does a typical order usually include?

A useful purchase order (PO) needs to contain enough information for the buyer, supplier, and accountant to accurately identify the transaction, goods or services, delivery terms, and payment terms. There isn't a single PO template required for every business, but it should generally include the following groups of information.

When businesses use ERP or purchasing software, purchase orders (POs) may include additional project codes, cost centers, budget codes, approvers, PO status, or multi-batch delivery schedules. This data is for internal management purposes and is not necessarily the same across businesses.

Is a purchase order (PO) legally valid? Is it considered a contract?

A purchase order (PO) can be part of the negotiation process or a document to prove the content of the transaction, but it should not be assumed that every PO automatically becomes a contract. It is necessary to review the contents of the purchase order (PO), how the supplier accepts the order, the relevant contract or quotation, and the process by which the parties execute the transaction.

Does the order need to be signed or stamped?

There is no general rule requiring all purchase orders (POs) from a business to be stamped. When confirming a PO, businesses should check the signing authority, internal approval procedures, supplier contracts, and specific transaction requirements.

Can purchase orders sent via email or as PDF files be used?

Sending a purchase order (PO) electronically does not automatically invalidate the information. The Electronic Transactions Law 2023 stipulates that information in a data message is not legally invalidated simply because it is presented in data message format. When using electronic POs, businesses should save the sent version, the time of sending, the sender/recipient, confirmation responses, and the change history. See the Electronic Transactions Law 2023.

Distinguish between Purchase Order (PO), Retail Purchase Order (PR), Sales Order, Invoice, and Contract.

A purchase order (PO) is a document from the buyer's side, while a public order (PR), sales order, invoice, and contract have different functions within the same buying-selling chain. Proper differentiation helps businesses avoid using one document to substitute for the function of another.

What is the difference between PR and PO?

PR stands for internal purchase request; PO stands for purchase order sent to a supplier. For example, the IT department creates a purchase order (PR) for 20 laptops to request approval. Once the request is approved, the purchasing department then creates a purchase order (PO) to send to the supplier.

What is the difference between a Purchase Order (PO) and a Sales Order?

A purchase order (PO) is created from the buyer's perspective; a sales order is created from the seller's perspective. In B2B transactions, the supplier can receive the customer's purchase order (PO) and then create a sales order in the ERP system to organize warehousing, delivery, and sales tracking. For a more in-depth look at this step, please refer to the process details. Convert Purchase Order to Sales Order.

What is the difference between a purchase order (PO) and an invoice?

The PO shows What did the buyer order and under what conditions?; An invoice is a document prepared by the seller for a transaction according to applicable regulations. Before payment, accountants usually need to verify the actual goods or services received instead of just comparing the purchase order (PO) with the invoice.

Common types of Purchase Orders

Standard Purchase Order – Standard PO

Used for a specific purchase when the business has relatively complete information about the goods or services, quantity, price, delivery date, and payment terms.

Blanket Purchase Order – PO frame

This is suitable when a business plans to make multiple purchases from the same supplier over a period of time. Both parties can agree in advance on the product range, quotas, price or pricing principles, and general terms and conditions.

Contract Purchase Order – PO under contract

Issued based on an existing contract or framework agreement, purchase orders (POs) typically focus on a specific purchase and refer to the relevant contract.

Planned Purchase Order – PO

This is used when a business has anticipated future purchasing needs but hasn't finalized the entire delivery schedule for each batch. Some information is predetermined, while the delivery schedule can be updated according to actual circumstances.

Service Purchase Order – PO for services

This is used when a business purchases services instead of goods, such as transportation, maintenance, consulting, or technology. A service purchase order (PO) should clearly describe the scope of work, timeframe, acceptance milestones, and pricing method.

The process of using purchase orders (POs) in businesses.

The purchase order (PO) process typically begins with the need to buy, goes through approval – ordering – receiving goods – receiving invoices, and ends when the transaction is reconciled, payment is made, and the PO is closed. Creating a purchase order (PO) should not be considered the entire purchasing process.

1. The need arises: The user department determines the goods/services, quantity, timing of need, and estimated budget.
2. Prepare and approve purchase requests: Check for necessity, budget, and approval authority.
3. Select supplier: Get quotes, compare them, and agree on the necessary terms.
4. Prepare and approve Purchase Orders (POs): The purchase order accurately reflects the approved needs and conditions.
5. Send purchase orders and receive confirmation: The supplier approves or proposes adjustments; significant changes should be tracked.
6. Receiving goods/services: Check the quantity and quality, and record the actual data received.
7. Receive and verify the invoice: Compare the purchase order (PO) with the delivery receipt and invoice data to identify any discrepancies that need to be addressed.
8. Payment and closing of PO: Process the payment according to the conditions and update the status to complete.

At the receiving stage, the accounting and warehouse departments need to clearly differentiate between items. Quantity on the purchase order, quantity according to the delivery document, and actual quantity received.. If further verification is needed at this step, please refer to the instructions. Warehouse receipt and verification method according to Circular 99.

What fields should a purchase order/postal order form include?

A basic purchase order (PO) template should be sufficient to identify the transaction, buyer and seller, goods/services, quantity and unit price, delivery, payment, and reference documents. Businesses can use the following structure as a starting point and then adapt it to their internal processes.

The purchase order (PO) template should be consistent with how the business approves purchases and stores data in its ERP or accounting software. Fields should not be added simply to "fill the form" if the operations department does not use or control that data.

How to manage and reconcile purchase orders (POs) before payment.

The purchase order (PO) only provides effective control when the data on the PO is subsequently used in the receiving and payment stages. Before approving payments, accountants should check the purchase order against the delivery note and invoice instead of checking each document individually.

• Has the purchase order been properly approved by the competent authority?
• Does the supplier listed on the purchase order match the actual invoice and transaction?
• Are the item code, description, unit of measurement, and quantity consistent?
• Do the unit prices on the invoice match the approved purchase order (PO) or terms and conditions?
• Does the quantity on the invoice exceed the actual quantity received?
• Are taxes, discounts, shipping fees, or additional charges as agreed?
• Is a purchase order (PO) being over-invoiced or duplicated?
• Can new documents still be generated even after the purchase order (PO) has been closed?

With few transactions, businesses can perform manual verification. However, as the number of purchase orders, receipts, and invoices increases, the reconciliation step can easily become a bottleneck because accountants have to find and combine multiple documents from emails, files, or ERP systems.