Many small retailers don’t use purchase orders because they have strong relationships with a handful of vendors. This type of organic procurement process naturally skips a few steps and tends to have less paperwork. It’s a process that works until something changes, like growth and expansion of services, or the vendor changes ownership. When this happens, the verbal deals may change without notice from one party to the other. This leads to complicated situations that may involve legal action.
The Procurement Process
Purchase orders are an important step in the procurement process, but only one step of many. Procurement is an umbrella term and should be considered a strategy for choosing the right products and vendors, establishing payment terms, negotiation of price, contracts, and purchasing. There are other steps in this strategy, such as receipt of product, invoices, and payment, but these play a minor role when compared to the purchasing order, because it becomes a binding contract.
The Purchase Order
A purchase order (often called a PO) describes the product and quantity, and sets the terms and delivery date. When a vendor approves the purchase order, it becomes a legally binding contract between the two parties. If the buyer receives the wrong order or it’s not up to the exact specifications, then they can point to the purchase order and either have the vendor fix it or terminate the purchase order. Without a purchase order, the buyer can be responsible for payment of a product they don’t want.
Reducing Your Paperwork
Many paper-based systems get inundated with paperwork from the purchasing process. There are confirmations, packing slips, notes, quotes, and invoices. Moving to a digital system can reduce the dizzying effects of all that paperwork. And, a system like Smartwerks POS can automate the process of generating purchase orders. It may seem like a lot of work, transitioning from paper-to-digital, but your business will benefit in more ways than you can imagine.
A fully integrated point of sale system reduces time spent receiving products, organizing files, and keeping track of inventory. Most of the vendors you work with probably have digital-based systems, as well. Products received can be entered into inventory with a quick scan (you should still physically count each item). Real-time updates on inventory and sales keep you on top of how your business is performing. Best of all, you can pull reports that let you know what you need before it goes missing from the shelves.
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Smartwerks POS can generate daily, weekly, or monthly inventory reports, which tell you exactly what you have and what you need. By comparing the established minimum and maximum stock levels that to the current available quantities, the “What To Buy” report recommends items to include on your next purchase order. With a single click, the system will automatically create the PO for you.
Running a Buying Report lets you see where your stock levels are for all your SKUs and the maximum you have set. This allows you to adjust the parameters when some products are selling more than others, and when they aren’t selling at all.
Tools like these make it difficult to run out of your best-selling products, and as a result, help prevent negative customer experiences.
Organizing Your Purchasing
A purchase order provides the important details of what you want, how much you’re going to pay, and when you need it. It also holds your vendors accountable and manages your accounts payable more efficiently. Another benefit of using purchase orders is for financing. Banks will consider your purchase orders when they assess your financing needs. Utilizing an automated system with built in purchase orders gives you more time to focus on your customers and less time on paperwork.
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