Purchase orders help retail stores manage incoming orders, prevent errors, and be more efficient. Here’s how to create, use, and manage them.
Jul 17, 2023
It’s tempting to order inventory in advance just in case you sell out. But businesses are sitting on $1.40 worth of inventory for every dollar in sales—a type of bloating that can happen for many reasons. One of them is losing track of orders you’ve made to suppliers, leaving you with high inventory levels and storage costs to match. Creating and tracking purchase orders is one way to reduce this problem. A good purchase order system makes it easier to forecast demand and order future stock, improve cash flow, and prevent any order errors that arise throughout the order process.Read on to learn what a purchase order is, how to create one, how to manage purchase orders, and to download a free PO template.
A purchase order (PO) is an official document in which your retail store commits to purchase goods from a supplier or vendor. It includes names of both the buyer (your store) and the vendor, company information, and the quantities of products being purchased. For example, if you’re sourcing 500 t-shirts for your apparel stores, you’d send a PO to the manufacturer as your commitment to purchasing that quantity of stock from that vendor. While it sounds like another unnecessary step in the ordering process, creating a purchase order for the goods you’re about to buy helps track incoming inventory. Not only will you know which SKU quantities you’ve ordered from each vendor, you’ll also be able to use your PO information to understand cash flow. The sum of your outstanding purchase orders is money you’ve committed to pay to suppliers over the next few months. The vendor also uses a PO to get things in place so they can deliver the quality and quantity of goods ordered by the buyer on a specific date.
Here’s an example of what a PO might look like for a retail store. The document outlines the vendor’s information, the items being ordered, the quantities, and the shipping terms.
Need help creating your own PO? Use Shopify’s free purchase order template. Enter the required information—including your store address, vendor company information, and items ordered—to get an electronic purchase order sent directly to your email address, ready to forward to vendors.
A standard purchase order is the most common type of PO. It’s used for one-off purchases. If you’re ordering 500 pens from a vendor in preparation for a pop-up shop, for example, you’d use a single-use purchase order.
A planned purchase order is created when you have repeat or regular orders with a vendor. Let’s say you plan to buy 1,200 units from a manufacturer, but instead of purchasing them all at once, they’re broken down into orders of 200 units for the next six months. You’d have six planned POs.
A blanket purchase order is the most vague type. It’s an agreement between a buyer and vendor to exchange goods in return for payment, but with the specifics still to be confirmed. You might use a blanket PO with a trusted manufacturer.
A contract purchase order isn’t necessarily an official PO; it doesn’t contain any specific information relating to products being purchased. It’s more a blanket agreement between a buyer and vendor that clarifies delivery, tax, and payment terms for any future orders. Another type of PO—be that a planned, single-use, or blanket PO—will follow.
Now that you know how to create purchase orders, let’s look at how to manage and track them for your retail store.
💡Pro Tip: If you also need to create and send invoices, check out Shopify’s free invoice generator.
Who issues purchase orders?
The buyer is responsible for issuing purchase orders. If you’re ordering inventory for your retail store, for example, it’s your job to create the PO. If you’re fulfilling an order for another business, it’s their job to issue a PO.
Depending on the size of your store, you might have a finance department, purchasing department, or accounts payable team who issues purchase orders. If not, the business owner or store manager usually takes this responsibility.
The vendor—be that a manufacturer, contractor, or otherwise—is responsible for approving purchase orders. If you’ve issued a PO for the inventory you’re ordering from a vendor, for example, it’s their job to approve it.
Once approved, the PO becomes a legally binding contract. You’re officially committed to pay that vendor for the goods outlined in the purchase order.
There are various ways to track purchase orders. Excel spreadsheets are often the first choice for businesses just coming to grips with them. The only problem? They’re clunky, confusing, and get inaccurate fast—especially if you forget to update the spreadsheet once a PO has been issued, approved, or converted into an invoice.
Ditch the spreadsheets in favor of a PO management system. Apps like Stocky sync with your Shopify store so you can create and track POs from your back office.
Upload company information for each vendor you’re working with. When you need to create a new PO, select the vendor. Stocky will create a PO with its contact information prefilled. Just copy and paste the terms of the PO—the items being ordered, quantities, and delivery dates.
The best part? You’ll never get caught up and unknowingly overspend. See how much money you owe each vendor in real time using the PO reporting dashboard.
💡 PRO TIP: Having trouble knowing how much stock to order from a vendor? Merchants using Shopify POS can use Stocky’s demand forecasting feature, which uses historical sales data to suggest which products and quantities to reorder.
Inventory replenishment planning is tough, especially if you’re stocking large quantities of SKUs. “Did I forget to restock this product for next month?” might be a question swirling around in your head as you circle the shop floor.
Leave replenishment too late and you risk running out of bestselling stock. Do it too early and you’re left with overstocks and too many products in storage. Both are costly mistakes.
💡 PRO TIP: To prevent stockouts, set reorder points in Shopify admin to get low stock notifications. These ensure you have enough lead time to replenish a product’s inventory before quantities reach zero.
However, using a purchase order system shows all upcoming orders, so you know exactly what expenses you’re paying out and which items you’ve ordered. Inside Stocky, the PO report details:
You can even set stock level restrictions for each vendor inside Stocky. If you try to create a PO for 80 items but your vendor has a minimum order requirement of 100, for example, the PO will be updated to reflect that. No back-and-forth delays needed.
Did you already place an order for next month’s inventory? By implementing POs into your buying process, one look inside your PO system will show the answer—preventing you from buying the same merchandise twice.
If you’re making orders over the phone, it’s only a matter of time until something gets misinterpreted or misheard. A manufacturer thinks you ordered 90 t-shirts when, in fact, you’d said you needed 19. You get a gigantic order delivered to your store and an expensive invoice to follow.
According to Daniel Carter, SEO Manager of Skuuudle, “To precisely explain all the facts of purchase, purchase orders give a record of exactly what you ordered and at what price. This type of paperwork protects you from any ordering errors, such as someone misinterpreting an order done over the phone.”
“When there’s a disagreement regarding what was or should have been ordered, your team can refer to POs. Having this documentation gives you a valuable tool for resolving internal errors as well as issues that arise between you and your vendors," Carter adds.
As soon as a PO has been approved by a vendor, you’re legally obligated to pay them the amount detailed for the products included. While it might sound scary, it’s advantageous for you as the buyers because you can order new merchandise without paying right away. Cash flow immediately gets better. You have a longer cycle to generate enough profit to pay for future stock.
The same legal protection applies to the vendors you’re sending POs to. They’re confident in delivering the products you’ve ordered for your store since they know an invoice and payment will follow.
Inventory management is a time consuming process. It’s also the activity that keeps your retail store afloat. No inventory equals nothing to sell, totalling $0 in revenue.
Purchase orders make inventory management processes more efficient. As part of your PO workflows, you’ll understand stock levels and track the costs of items you’re ordering from vendors. Patterns will appear over time.
Let’s say before you implement POs, you make an order of 200 units each month. Some months you sell out; others you’re stuck with a little longer. The new PO system shows existing inventory levels alongside your new order quantities. So, if you find you have 150 units left over from last month, change this month’s PO to 50 units. You’ll prevent bloating your inventory and accumulating large stock volumes that become increasingly harder to shift.
As a small retail business, ordering stock might not feel like much work. But if you plan to scale your product line as your customer base grows, POs make that process easier. The responsibility doesn’t fall on you to organize upcoming orders, prevent duplicates, and correct order errors.
Using purchase orders—and a system to organize them—gets your foundations right. Train new retail staff on how to use your purchase order form. Create automations to generate one when top performing stock dips below a certain level. In the future, hire a finance department who approves the POs and prevents overspending. It’ll make things easier in the long run.
Purchase orders help retailers track incoming orders, commit to stock further in advance, and prevent order discrepancies. They also provide legal documentation should something go wrong in your supply chain process.
Determine the type of PO you need for your business, then use a purchase order system like Stocky to create them. It’ll make scaling your retail store easier and contribute to balanced inventory levels.
Additional research and content from Alexis Damen.
Create purchase orders without leaving your POS
With Shopify, you can access Stocky to forecast demand, create purchase orders, and manage cash flow without leaving your point-of-sale system. Set reorder points, enable low stock alerts, create POs, see upcoming payments owed, and more.
A purchase order (PO) is a formal document that is created by a buyer and sent to a seller as a request for goods or services. It includes the details of the items or services that are being requested, how many units are being requested, the price and payment terms, the expected delivery date, and any other special instructions or requirements. The seller then reviews the PO, and if accepted, will provide the goods or services as specified. Once the goods or services are received, the buyer must then provide payment to the seller according to the terms of the PO.
A purchase order is a document that is sent from a buyer to a supplier that details the items or services being requested. It is a binding agreement between the buyer and the supplier that outlines the terms and conditions of the purchase. An invoice is a document sent from the supplier to the buyer that states the total amount of money due for the goods or services provided. It is sent after the purchase has been made, and it serves as a record of the transaction.
Yes, you can use purchase orders to track incoming goods and match them against your sales to determine your stock levels. This can help you plan and maintain optimal inventory levels.
If there is a discrepancy between your purchase order and the goods received, you should contact your supplier to rectify the situation. Some businesses use a goods received note (GRN) to track this process.
When you issue a purchase order, it becomes a part of your financial records. When the goods or services are received, the corresponding invoice is matched with the purchase order, and the payment is recorded in your accounting system.
If a supplier fails to fulfill a purchase order, you should first contact them to understand the issue. If they’re unable to deliver, you may need to seek alternative suppliers. The terms and conditions of your contract should protect you in such situations.
It depends on the terms agreed upon with your supplier. In general, changes or cancellations after issuance require communication and agreement from both parties.
