You’ve received a purchase order. Now what?

Many small businesses specialising in selling goods invest much time in bidding for purchase orders from major companies and government clients.

If you are ready to apply rather than read, Sourcefin's purchase order funding service page explains the model in practical terms – including a worked deal example and the four-question eligibility assessment.

Whether you’re fortunate enough to be fully prepared to fulfil the order or it’s going to require more planning; what you do after receiving it is crucial to reaching a successful result.

What is a purchase order?

Before delivering on one, you need to know precisely what a purchase order is and how purchase orders work, so you’re never caught off guard when you apply and, hopefully, are awarded one.

A purchase order is a legally binding commercial document issued by a business or government’s purchasing department or a buyer when placing an order with a vendor. At the rudimentary level, the purchase order is essentially a list of items your client wants to purchase with all of the necessary details. The document indicates the product, quantity, type, and cost.

The PO, as it is commonly called, also features payment terms with methods and delivery terms, contact details for both parties, addresses for both parties, and a must-have PO number. Purchase orders are usually utilised by businesses who require goods in large quantities for their operations.

Purchase orders can further be broken down into two categories depending on the customer’s needs and how the seller can best accommodate them. These categories are:

Standing purchase order

Buyers, in some instances, opt to create special orders for huge shipments for recurring purchases. A standing purchase order allows a buyer to purchase the same product multiple times over a specific period under the same PO number. 

Blanket purchase order

This is an agreement between both purchaser and vendor to accommodate multiple deliveries over a set timeframe, at a predetermined price agreed upon by both parties. Blanket purchase orders are usually between vendors and buyers who have fostered a robust and long-standing relationship and often feature incentives such as discounts and waived fees.

3 things to do after receiving a purchase order

So, you’ve received a purchase order. What should you do next?

1. Make sure that it is real

Once you receive a purchase order, you must thoroughly pursue it to confirm that all the information is correct and that the purchase order is legitimate and not yet delivered upon. Calling your client’s procurement/purchasing department is the best way to validate that you have been awarded the purchase order.

2. Check that you can deliver on it

After receiving a purchase order, you must ensure that you are capable of completing the order. That means checking your inventory and cash flow and liaising with your supplier to estimate a price and possible lead times to ensure you can deliver before the due date. After speaking to your supplier, you may find that you cannot deliver on the purchase order due to a lack of funding. Don’t let that be the reason for you declining the opportunity. Rather, reach out to a PO funding specialist, like Sourcefin, who will not only help you fund the deal, but also offer a full-service solution from sourcing to logistics to project management. Finding the right funding partner is a way to scale your business. Our pillar guide on purchase order funding in South Africa walks through how funders bridge that exact gap for SMMEs.

3. Confirm with your client that they are satisfied with the goods to be delivered

Once you have determined that you can deliver on the order, you will sign on the dotted line at the bottom of the purchase order, forward a copy to your client and keep a copy for your own records. You will then get to work with the supplier and start planning to successfully fulfil the order. Upon delivery of the required items to your client, ensure that you receive a signed invoice and delivery note. In some cases, your client may reject the order due to a mismatch of specifications, quantity difference or delay in delivery. If you have received purchase order funding from Sourcefin, the PO funder would pay the supplier directly and, after delivery, collect the fees owed from the payment made by your client.

Remember a PO is a legally binding document so understanding its requirements and delivering on it properly is of the utmost importance. For peace of mind, and to increase the possibility of scaling your business, consider partnering with a purchase order funder like Sourcefin, that not only provides funding support, but also provides you with a full-service solution ensuring that every purchase order you receive is successfully delivered upon, delighting your client and ensuring more orders come your way.