Companies use purchase orders for several reasons. Purchase orders allow buyers to clearly and explicitly communicate their intentions to sellers. They may also help a purchasing agent to manage incoming orders and pending orders. Sellers are also protected by PO's in case of a buyer's refusal to pay for goods or services.
Purchase orders provide benefits in that they streamline the purchasing process to a standard procedure. Commercial lenders or financial institutions may provide financial assistance on the basis of purchase orders.There are various trade finance facilities that almost every financial institution allows to business people against purchase orders such as:
- Before shipment credit facility
- Post shipment credit facility
- Trade finance facility
- Foreign bill purchase credit facility
- Bill retirement credit facility
- Order confirmation
The purpose of purchase orders is to procure materials for direct consumption or for stock, procure services, cover customer requirements using external resources, or procure a material that is needed in plants from an internal source (Long distance intra-plant stock transfers). They may also place once only procurement transactions and optimize purchasing by taking full advantage of negotiated conditions or for optimal utilisation of existing transport capacities.