Starting out in merchandising made me immerse myself into a whole new set of business words and documents and the most common thing I am doing every single day of my job is to release Purchase Orders to various merchandise suppliers.
On the other hand there is relative confusion to those who are new in the business the difference of Purchase Order from a Pro-forma Invoice
First let me me explain when is a pro-forma invoice issued.
Once after agreeing the terms of contract of sale, the buyer has to issue a purchase order or Letter of Credit. Just before this process, the seller has to send a ‘pro-forma invoice’ to buyer, mentioning complete details of agreement of sale. Normally, purchase order or Letter of credit is opened on the basis of this pro-forma invoice sent by the seller.
So, we can treat pro-forma invoice as a document of commitment to sell the goods to the buyer as per the terms and conditions agreed between both in person, over telephone, by fax, email or any other mode of communication. In other words, we can treat the pro-forma invoice as a ‘confirmed purchase order’ from the seller, although the official purchase order has to be issued by the buyer. The pro-forma invoice is issued before sales takes place.
Once after receiving pro-forma invoice from the supplier, the buyer sends a purchase order or opens a letter of credit to the supplier.
Here we come to the point of knowing what a Purchase order really is.
Once the seller sends the details of the product(even a sample of an actual merchandise) and after satisfaction of quality, price and terms and conditions the seller sends a pro forma invoice to buyer. Based on such pro forma invoice, buyer release a Purchase order to seller as confirmation of purchase of his goods. Purchase order contains the details of product, quantity, price, payment terms, delivery terms and other terms and conditions of purchase contract as mutually agreed between buyer and seller. Normally purchase order is prepared by buyer on the basis of pro forma invoice sent by seller to buyer. Once after acceptance of purchase order by seller, the purchase contract exists.
Thus delivery of goods by the seller shall be expected on the date indicated in the Purchase Order, sometimes there are instances where suppliers cannot fully fulfill the quantities indicated in the purchase order that there are still negotiations that can be made verbally. Most often especially for big companies, delivery of less than 50% of the indicated quantity means rejection of the delivery. In some instance, a new Purchase Order has to be issued indicating the adjusted quantity that the seller can deliver.
