A purchase order (PO) is a key part of the buying process for any business. It marks the formal start of a transaction by clearly stating what items are needed, in what quantity, and from which supplier. Beyond simply placing an order, a PO helps track purchases, control spending, and restock inventory on time. It also creates a written record that both buyer and supplier can refer to during fulfillment and payment. If you’re looking to create one for your business, you can download a free purchase order template below.
How Purchase Order Fits in The Process
A purchase order, or simply PO, is a legally binding document that is sent by a buyer to a seller when they want to buy specific goods or services at a mutually agreed-upon price.
This document will include the details of the products or services you wish to purchase, including their descriptions, quantities, and prices. Additionally, it contains details such as FOB terms, delivery date, and shipping method.
A purchase order is issued once you have identified your needs and specified requirements for the goods or services you need. For larger purchases, it is common for businesses to request bids or quotations from suppliers through a Request for Quotation (RFQ) or a Request for Proposal (RFP). After receiving and reviewing the bids or proposals, the business selects a supplier and issues a Purchase Order (PO).
Once accepted by the supplier, a PO becomes a legally binding document. The supplier then delivers the goods or services and submits an invoice referencing the PO. Depending on the agreed payment terms, the payment may be made in full or through multiple installments. Once the payment is received, the supplier issues a payment receipt for record-keeping and reconciliation.
A purchase order is not only important because it is a source document, but it is also significant for ensuring that no misunderstandings arise with the supplier when placing an order.
If you are in charge of the procurements in your organization or you order products for your company yourself, you will find this Purchase Order Template developed by WordLayouts very useful for your purchase process. The template presents a clean and easy-to-use layout with ample room for customization. It features built-in automations for quick data entry and calculations, saving a lot of time and ensuring fewer errors and mistakes when creating POs.
Let’s explore this template in detail so that you can easily use it when creating a PO document for your next order.
Purchase Order Template – How It Works
This template comprises four sheets: the main Purchase Order sheet, the Vendor sheet, the Ship-to sheet, and the Item List. The Vendor, Ship-to, and Item List sheets act as lookup databases and support filling in data in the template quickly and accurately.
Set up the vendor list
The first thing you need to do is create your master contact list. Go to the Vendor List sheet and fill out the details of all your suppliers. In the list, you will find columns for filling out the following:
- Vendor Name
- Vendor ID
- Email Address
- Physical Address
Once you have filled in this list with the details of your suppliers, you will not have to type it again when creating a purchase order.
Fill out the “ship to” list
Next, move on to the sheet titled Ship to. This part of the template makes it easier for you if you have multiple locations or you are purchasing on behalf of someone; then you can add those addresses in this sheet.
The details to include are:
- Name
- Company
- Phone Number
- Address
Add information to the item list
Now we can move on to this template’s third sheet, the Item List. Here, you will find fields to manually add the item codes, descriptions, and the agreed-upon prices of the items you regularly purchase.
Putting it All Together – Creating a Purchase Order
Once you have set up the vendor list, the ship-to addresses, and the item list, you are ready to create a purchase order.
Go to the Purchase Order sheet and fill in your company’s name, address, phone number, email address, and website in the fields provided in the sheet. In the next section, write the date when the PO is created, the number of the PO, its expiry date, and your tax ID.
Move on to the next part, where you will find three columns: Vendor, Ship To, and Bill To. If your billing address is the same as the shipping address, then make use of the checkbox next to Bill To, and you will not need to type the address again for the purchase order.
This stage of creating the PO will go smoothly because you have already filled in the linked sheets with the vendor’s information and the ship-to addresses. The dropdown menus are set up through data validation in both these columns, and let you choose the vendor and the shipping location without having to type in the details and having to look up the addresses again and again if creating multiple documents.
Once you have filled in these sections, you will need to add some specific details related to your order:
In the requisitioner field, you can type in the name of the team member, department, or requester who had asked for the items to be purchased.
The next cell is for FOB (Free on Board) which will determine who is responsible for the goods at different stages of the delivery.
It can be either FOB Destination, i.e., the seller pays for delivery and is responsible until the goods arrive at your place. Or it can be FOB Origin, which means the buyer (you) takes ownership once the items leave the seller’s place.
The next section of your purchase order requires specifying the shipment method. You can specify by air, by sea, by courier, etc., here. If you are collecting the items yourself, self-pickup can be written as an option.
Lastly, do not forget to mention any shipping terms that you have agreed upon for the purchase. For instance, it may include requesting delivery within a specified timeframe or clarifying who is responsible for the shipping costs.
Now we come to the most important part of the document – the Items Ordered section. You can add the details of the items you would like to purchase in this template in no time, thanks to the linked sheets.
The Item Code column features a drop-down menu that is powered by the entries in the linked sheet. You can select the item that you would like to order, and the Item Name, Description, and Unit Price fields will be automatically populated by fetching data from the linked sheet that you have earlier filled in.
Now the only thing left to do is manually enter the quantity you want to purchase in the QTY column, and the template will automatically calculate the total price for the items requested.
At the end of the Purchase Order template, you can manually add any Discount, Tax percentage, or Shipping cost. The template utilizes predefined formulas to calculate the amount in the Total cell.
You will also find a Special Instructions text box in the template where you can add any information related to your purchase to avoid any confusion or miscommunication. You can use this space to write special delivery times or access instructions, packaging preferences (e.g., fragile, eco-friendly), or add any notes about urgent orders or delays. This section can also be used to refer to any already agreed-upon Statement of Work (SOW). Write the SOW number and date here for added clarity.
Finally, write the name of the person who has initiated and authorized the PO to be initiated and the date in the designated fields.
At the end of the document, you can insert the contact details of the person who can answer any queries related to the purchase request.
If you prefer a more traditional approach and like the paper and pen workflow, then you can access this template in Word format as well. You can easily print multiple copies of it to create a PO booklet for your office and modify sections if required.
Is an Invoice the Same as a Purchase Order?
At first glance, your initial thought might be that a purchase order is exactly like an invoice. After all, it contains a list of items, their quantities, prices, and a total amount, so why is it not considered an invoice?
The difference lies in the purpose and the creator of the document. A purchase order is created by the BUYER and includes the list of items that they want to buy. The document is issued to the seller before the goods have been delivered. On the other hand, an invoice is issued by the SELLER and is seen as confirmation of the sale. It shows how much the buyer needs to pay for the goods they have received.
