The Purchase Order is the Best Currency

17 October 2010

The purchase order (PO) has more power than domestic currency when two businesses are making a transaction. In order for a company to run efficiently and to increase sales most companies accept this form of currency as an official IOU.

The acceptance of a purchase order in exchange for hard currency generally occurs when the amount is not a capital expense between two unknown parties and is common place in America. It has become the way business is run. Once a PO is issued and the goods are received, there should also be a bill attached.

In a typical case, the purchase order that was used is paid for in hard currency near the time of the goods being received between two unknown parties. This is the way credit lines between businesses develop. There can even be a delay of a week or two without any damage to the new credit line.

When a purchase order is issued between two business that have a long lasting relationship, like between a manufacturer and a supply company, the balance of all accumulated PO’s can occur at a prearranged to time. This is commonly at the end of the month.

When it comes to a capital expense, a purchase order is still very often used. Since the amount that is being given in credit is so large, most companies require preapproval of this large amount before the transaction can occur. In many instances the amount is so large that it cannot be paid all at once. In this case a payment plan can be established before the transaction is approved.

A purchase order can also be used on a capital expense when it is expected to be paid in full. This will require the company accepting delivery to either have the funds on hand so the bill can be paid or they have secured a loan to cover this expense.

No matter when the payment is made, the purchase order is the business world’s way of conducting commerce. This speeds the process of exchange of gods and service to those that intend to pay for them.