The importance of purchase orders is one of the most underrated concepts in the business community. But what if we told you that by simply choosing the right PO type, you can:
- Save loads of time for your purchasing team and accountants
- Get high-quality goods & services right when you need them
- Strike top-of-the-market bargains with suppliers
- Cut administration and storage costs
- Carefully predict your supply needs
Seems too good to be true? Read on and find out how to decide between the two widely used purchase order types and make the most of them.
But first, let’s quickly cover the basics in case you’re new to purchase orders. Feel free to skip the next section otherwise.
Purchase Order Types at a Glance
A purchase order is an offer a buyer makes to a seller, a commitment to purchase a product or service. As soon as the vendor accepts a purchase order, it becomes a binding contract and an official basis for a commercial B2B cooperation.
If you’re a fan of whiteboards like us, check out this short video on purchase orders:
There are 4 main types of purchase orders:
- Standard PO - for one-time and short-term orders
All information about the order is included and fixed: quantity, price, delivery.
- Planned PO - for orders from one source with multiple releases over time
Almost identical to the previous type, except for omitting the firm delivery schedule.
- Blanket PO - for long-term recurring orders
May be limited by a time frame, a product quantity, or costs.
- Contract PO - for establishing commercial relationships
The information on goods isn’t specified. Used for negotiating terms and conditions.
Choosing between a standard and blanket purchase order is among the most common challenges that procurement professionals and CFO’s face.
Let’s dive deeper into the comparison of these two types to figure out the best option for your business.
What is a Standard Purchase Order?
Using normal PO as a commercial document, procurement teams and purchasing departments place irregular or one-off orders for goods and services the company requires.
Examples: A hotel furniture set, catering at a milestone event, office computers, capital renovation services.
Being the most common and accessible purchase order, the regular PO is also quite comprehensive, considering full fixed order details.
The more informative a standard purchase order is, the more effective and streamlined is the procurement workflow.
An SPO also resembles another type of purchase order — the planned PO. The main difference is the delivery schedule, which is tentative in the case of a planned purchase order.
What’s Included in a Standard Purchase Order?
- Order number and date
- Buyer and seller official details
- Established delivery date and location
- Terms and conditions of the order, discounts
- Description, pricing, and quantity of the ordered goods.
When to Use a Standard Purchase Order?
- When the in-depth order specifics are crucial
- For sporadic, infrequent, or one-time purchases
When Not to Use a Standard Purchase Order?
- Applicable in almost all cases, except for when other types of PO offer more profitable terms
- Not a good fit for recurring long-term orders
What is a Blanket Purchase Order?
Also referred to as a Blanket Agreement, Standing/Frame/Call-Off Order, BPO is designed to satisfy the organization’s recurring need for goods or services.
Examples: Regular office cleaning services, daily water delivery, raw materials for a construction project, scheduled tech maintenance and repair.
Consolidating several standard POs into one volume purchase, a standing agreement contains multiple delivery dates over a specified period of time.
The buyer and the supplier usually establish such purchase orders on a yearly basis or arrange limitations on supplies quantity and expenditures.
For companies, BPOs eliminate repetitive efforts, cut administrative costs on order processing, and improve procuring efficacy in general.
For suppliers, it means predictable revenue flow and ongoing business. A reduced lead time is a resulting BPO benefit for both.
A blanket order also features bulk discounts and predetermined pricing, protecting businesses from market fluctuations.
A standing agreement prevents inventory shrinkage, you’ll always know when it’s time to restock.
At the same time, it reduces buyer’s storage expenses compared to a massive one-time order.
Much like a contract purchase order, a blanket PO is a basis for lasting commercial relationships between purchasers and vendors.
But in contrast to the CPO, it contains more details on the actual purchases.
What’s Specified in a Blanket Purchase Order?
Apart from the details characteristic for normal PO, a standing purchase order contains the following information:
- The covered period of time (duration of the agreement)
- Multiple delivery schedules
- Fixed unit or periodic price (for goods or services, respectively)
- Quality and size specifications
- Total costs for the length of the contract
When to Use a Blanket Purchase Order
- When you repetitively order from the same reliable supplier
- When there’s a specific timeframe for purchasing
- When this form of commerce facilitates beneficial terms
- For standardized products that require multiple shipments
When Not to Use a Blanket Purchase Order
- When the pricing of products may vary/are unknown at the time of purchase
- When the required quantities can’t be forecast
- When you’re not sure the product or service quality meets your business needs
- When the terms are subject to change by the seller without notice
What is the Difference between Standard and Blanket Purchase Orders?
Now let’s take a closer look at the differences between a standard purchase order and a blanket purchase order.
A normal PO is typically used for a shorter timeframe while a blanket order is meant for a longer period of time, featuring a firm contract start and end date. The standing agreement duration can then be extended by the parties, which is uncharacteristic for standard contracts.
Level of Detail
A regular purchase order is extremely specific, containing full information on the ordered materials or services. As for a blanket purchase order, it tends to be generic, providing high-level purchase details only.
A standard purchase order features a set amount based on the cost and quantity of the items. Setting an exact amount for a blanket order is advisable but not mandatory.
The following exploration of Blanket vs Standard PO’s ups and downs will help you make a confident decision between these two options:
|Standard PO||Blanket PO|
|Pros||✅ Universal for most purchases
✅ Simple and easy to use
✅ Highly detailed and customizable
✅ Suitable for encumbrance accounting
|✅ Volume purchasing saves you time and paperwork
✅ Locks in bulk prices and terms, lowering risks
✅ Gives you the volume discount leverage and secures it
✅ Makes costs predictable within the established period of time
✅ Minimizes the need for storage
|Cons||❌ Smaller purchases are more time-consuming
❌ May require much more paperwork than other types
❌ Difficult to process for smaller teams
|❌ Limited visibility of future spends for accounting forecasts
❌ Makes budget management more time-consuming, especially for encumbrance accounting
❌ If the product value declines during the agreement’s duration, your business could suffer losses
❌ Poses challenge of matching a single PO with multiple receipts and invoices
❌ Lack of tools able to automate the BPO workflow in particular
Purchase Order and Blanket Purchase Order: a Quick Guide
Although a deeper understanding of different purchase order types can go a long way, you’ll be able to reach maximized business potential by automating the PO creation and procurement management processes in general.
This crucial step will spare you the hassle of error-prone manual documentation (no offense, PDF and CSV), streamline your whole purchasing workflow, and secure your ROI in the long run.
How to Create a Purchase Order with Precoro
The Precoro Purchase Orders functionality is intuitive and time-efficient, even if we do say so ourselves. But don’t take our word for it, check out how to create different order types in a matter of minutes:
1) Go to the menu on the left and choose Purchase Order.
2) Click Create.
3) The required fields are Delivery date, Location, Supplier, and target Departments.
4) You can also specify Taxes, Terms of Payment, and Budgets.
5) When you’re done filling out the form, click the Create button below.
6) If you’ve previously created a catalog of products in Precoro click Add Product.
7) Otherwise, click Add Empty Row and type in the goods or services as well as their prices.
8) Make sure the info is correct and click the Confirm button.
NOTE! If you currently use Quick Books accounting software, we have just the guide for you: How to create a Purchase Order in QuickBooks Online. Precoro also boasts a direct integration with this system as well as with many others.
How Do You Make a Blanket PO with Precoro
Creating a blanket agreement with Precoro is a similar process, but you’ll have to activate this feature in the settings first. Here’s how it’s done:
1) Pick Configuration in the left-side menu.
2) Then, choose Basic Settings.
3) Go to the Purchase Orders tab and tick the Blanket PO box there.
4) Click the Update button below.
You’re all set! The Create Blanket PO button will now appear in the Purchase Orders menu section.
In this mode, you’ll be able to choose additional blanket purchase order parameters, such as:
- First delivery date
- Amount of the deliveries
There’s also an unlimited amount of custom fields in Precoro, so you’ll be able to tailor your standing order exactly to your needs. Try out these features (and much more) first-hand with our full-access 14-day free trial.Create Free PO
B2B transactions are challenging. To keep on top of them, both procurement departments and suppliers require clear documentation and consistent financial management strategies. Otherwise, they risk failing to account for orders and make costly mistakes.
That’s where purchase orders come into play, keeping a record of ordered items and services, prices, stock, delivery dates, as well as other terms. They benefit enterprises and small businesses alike by providing spend visibility and optimizing order processing.
Choosing the appropriate type of purchase order tailored to your organization’s goals is essential for procurement teams to provide optimal value. This helps to establish lasting relationships with cherry-picked vendors, forecast your inventory needs, save time and money.
While deciding between a standard and blanket purchase, consider the following:
- Are your orders primarily recurring?
- Do you order from the same reliable supplier?
- Would you like to place bulk orders with volume discounts?
- Does your vendor guarantee goods availability and quality in the long run?
If most of these points made you nod in agreement, a standing agreement or a BPO is right for you. If not, you should probably go with the universal standard order, which will tend to your short-term, irregular purchases with detailed fixed conditions.
To bring your performance to an even higher level, benefit from state-of-the-art procurement software like Precoro. An effective purchasing management tool keeps your purchase requests, orders, approvals, budgets, reports, and other vital data safely in one place, allowing you to focus on what matters.