Purchase Orders & Receiving: A Complete Guide

What is a Purchase Order?

A purchase order (PO) is a formal document sent from a buyer to a supplier that specifies exactly what products are being ordered, in what quantities, at what price, and when they should be delivered. Once the supplier accepts the PO, it becomes a legally binding contract between both parties.

Think of a purchase order as a detailed shopping list with commitments attached. It protects both you and your supplier by clearly documenting expectations before any goods change hands or money is exchanged.

Why Purchase Orders Matter

Purchase orders create a paper trail that's essential for inventory management, financial planning, and quality control. Without them, you're operating on verbal agreements and emails, which leads to confusion about what was ordered, when it should arrive, and how much you agreed to pay.

For your accounting team, POs enable proper expense tracking and budget management. They can see what's been ordered but not yet received, helping them forecast cash flow and reconcile invoices. For your warehouse team, POs provide advance notice of incoming inventory, allowing them to plan space and labor accordingly.

From a legal standpoint, a proper PO protects you if disputes arise. If a supplier delivers the wrong quantity or product, you have documentation proving what was actually ordered. This clarity prevents costly misunderstandings and provides recourse if issues occur.

Essential Elements of a Purchase Order

Every purchase order should include specific information to prevent confusion and ensure smooth processing. At minimum, your PO needs a unique PO number for tracking and reference. This number becomes the key identifier throughout the entire receiving and payment process.

Include complete supplier information including the company name, contact person, address, and phone number. Add detailed product specifications for each line item with SKU numbers, product names, quantities, unit prices, and total line costs. Don't forget the delivery address, especially if it differs from your business address or if you use multiple warehouses.

Specify the requested delivery date or date range, payment terms such as Net 30 or Net 60, and any special instructions regarding packaging, shipping methods, or handling requirements. Include your standard terms and conditions, or reference where they can be found.

Finally, ensure the PO has proper authorization with signatures or approval stamps from whoever has purchasing authority in your organization.

Types of Purchase Orders

Standard Purchase Order is the most common type, used for one-time purchases with specific quantities, prices, and delivery dates. This is what most businesses use for regular inventory replenishment.

Blanket Purchase Order covers multiple deliveries over a period of time, typically used when you buy the same products regularly from the same supplier. Instead of creating a new PO every week, you might issue one blanket PO for a year's worth of monthly deliveries. This saves administrative time and often secures better pricing.

Contract Purchase Order establishes terms for recurring purchases without specifying exact delivery dates or quantities upfront. It's essentially a framework agreement that you'll reference when placing actual orders.

Planned Purchase Order includes a schedule of expected deliveries over time. Unlike a blanket PO, this specifies exact quantities and dates for each scheduled delivery.

The Purchase Order Process

The process typically begins when inventory levels trigger a reorder point, or when you're launching a new product. Someone in your organization, whether it's a buyer, inventory manager, or business owner, creates a PO in your system.

The PO goes through your internal approval workflow, which might require sign-off from a manager or multiple stakeholders depending on the dollar amount. Once approved internally, the PO is sent to the supplier via email, EDI, or through a supplier portal.

The supplier reviews the PO and either accepts it, requests modifications, or rejects it. Upon acceptance, they should send an order acknowledgment confirming the details and expected ship date. This acknowledgment is crucial because it confirms both parties agree on the terms.

The supplier then prepares and ships the order, ideally sending an Advanced Shipping Notice (ASN) that provides tracking information and expected delivery date. This allows your warehouse team to prepare for the incoming shipment.

Finally, the goods arrive at your warehouse, the receiving team processes the shipment against the original PO, and the PO is closed once everything is received and verified.

Advanced Shipping Notices (ASN)

An ASN is an electronic notification sent by the supplier before goods arrive, providing detailed information about the shipment contents, packaging, and expected delivery time. Think of it as a heads-up that lets your warehouse team prepare.

A good ASN includes the PO number, expected delivery date and time, carrier and tracking information, detailed packing list with quantities and SKUs, and information about how items are packaged such as pallets, cartons, or boxes.

ASNs allow you to schedule labor appropriately, prepare warehouse space for incoming goods, identify and resolve potential issues before delivery, and speed up the receiving process since you know what to expect. When suppliers provide detailed ASNs, receiving teams can process shipments up to 50 percent faster because they're not working blind.

The Receiving Process

Receiving is where the rubber meets the road. This is your opportunity to verify that what you ordered is actually what arrived, in the condition you expected.

Pre-Receiving Preparation

Before the truck arrives, your team should review the PO and ASN to understand what's coming. They should prepare the receiving area with adequate space for unloading and inspection, ensure the necessary equipment like pallet jacks or forklifts is available, and have receiving documents and tools ready including scanners, scales, and inspection checklists.

Unloading and Initial Inspection

When the shipment arrives, document the delivery with date, time, carrier, and tracking numbers. Perform an external inspection of the shipment before signing for it, looking for obvious damage to pallets, boxes, or wrapping. Count the number of pallets, cartons, or pieces at a high level to ensure the basic shipment size matches expectations.

If there's obvious damage or shortage, note it on the delivery receipt before signing. Take photos of any damaged goods or packaging. This documentation is critical for filing claims with carriers or suppliers.

Detailed Receiving Inspection

Once unloaded, it's time for the thorough inspection. Open packages carefully and count actual quantities received, comparing them to the PO and packing slip. Verify that SKUs and product descriptions match what was ordered. Check product condition for any damage, defects, or quality issues.

For applicable products, verify expiration dates and lot numbers, ensuring you're not receiving goods that are already near expiration. Inspect packaging quality to confirm products are properly protected. Compare received prices on the packing slip to the PO prices to catch any discrepancies before the invoice arrives.

Discrepancy Handling

Discrepancies fall into several categories. An overage means you received more than ordered. Document this and contact the supplier to determine if they want it returned or if they'll adjust the invoice. A shortage means you received less than ordered. Note this on receiving documents and contact the supplier immediately about shipping the missing items.

Damaged goods should be photographed and quarantined. Contact the supplier about returns or replacements according to your agreement. Wrong items require you to document what you received versus what was ordered and arrange for return and correct shipment.

Create a discrepancy report for any issues, including photos, quantities, and descriptions. Send this to the supplier within your agreed-upon timeframe, typically 24 to 48 hours. Keep detailed records of all communications and resolutions.

System Entry and Documentation

Record the receipt in your inventory management system or WMS, entering actual quantities received by SKU. Update your PO status to either partially received or fully received. Generate receiving reports for your records and accounting team.

If using lot or serial number tracking, ensure this information is captured in your system. Apply received inventory to the correct GL accounts if you're managing financials. This accurate data entry is what keeps your inventory counts reliable.

Putaway

After receiving and inspection, items need to move to their storage locations. Reference your slotting strategy to determine where each SKU belongs. Update location information in your WMS as items are put away. Ensure proper rotation with FIFO or FEFO practices, putting new stock behind older stock.

Quality putaway is just as important as quality receiving. Products placed in wrong locations become lost inventory that shows in your system but can't be found when needed.

Best Practices for PO Management

Maintain a standardized PO template that includes all necessary information fields. Use sequential PO numbering with no gaps or duplicates to ensure every PO can be tracked. Implement approval workflows that match your company's financial controls, preventing unauthorized purchasing.

Set up automated reorder points in your inventory system so POs are generated before you run out of stock. Build buffer time into delivery dates to account for shipping delays and receiving processing time. Don't cut it too close.

Maintain clear communication channels with suppliers and respond promptly to their questions about POs. Keep a centralized repository of all POs for easy reference and auditing. Review open POs regularly to follow up on delayed shipments or forgotten orders.

Best Practices for Receiving

Create and follow standard operating procedures for receiving that all team members understand. Use technology like barcode scanning and mobile devices to reduce manual data entry errors. Conduct blind receives periodically where the receiving team doesn't see expected quantities, which improves accuracy and catches issues.

Implement quality control checks, especially for new suppliers or critical products. Some businesses inspect 100 percent of items, others use statistical sampling. Choose what's appropriate for your business and risk tolerance.

Schedule receiving during specific hours when possible to ensure adequate staffing and prevent backups. Train receivers thoroughly on procedures, system usage, and how to identify quality issues. Cross-train multiple team members so receiving doesn't depend on one person.

Maintain a clean and organized receiving area because clutter leads to mistakes and lost products. Establish clear metrics like receiving accuracy rate, average time to process receipts, and percentage of receipts processed within 24 hours. Track these KPIs to identify improvement opportunities.

Common Mistakes to Avoid

Don't skip the inspection process even when you're busy. Rushing through receiving leads to accepting damaged goods, wrong quantities, or quality issues that become your problem. Taking ten extra minutes during receiving can save hours of headaches later.

Never sign for shipments before inspecting them. Once you sign, proving the damage or shortage occurred before delivery becomes much harder. If the driver is rushing you, stand your ground. Document first, sign second.

Avoid delayed system entry. Some warehouses receive goods physically but don't update the system until later. This creates a lag where inventory shows as not received when it's actually in the building, leading to duplicate orders or picking errors.

Don't neglect supplier communication about issues. If you receive discrepancies but don't report them promptly, suppliers may refuse to correct the problem. Most suppliers have timeframes for reporting issues, often 24 to 48 hours.

Technology Tools for PO and Receiving

Modern warehouse management systems such as Shipsidekick, Packiyo, Shiphero and Deposco integrate purchase order management and receiving functions, streamlining the entire process. Your WMS should allow you to create POs, receive against them with barcode scanning, automatically update inventory counts, flag discrepancies, and generate receiving reports.

Many businesses use EDI (Electronic Data Interchange) for automated PO transmission and ASN receipt, eliminating manual data entry and speeding up communication. Cloud-based inventory management platforms offer real-time visibility into PO status and received inventory across multiple locations.

Mobile devices and barcode scanners enable receivers to work efficiently without being tied to a computer terminal. Some advanced systems use RFID technology for automatic identification and counting of received goods, though this is typically only cost-effective for high-value items.

The Bottom Line

Solid purchase order and receiving processes form the foundation of accurate inventory management. When you know exactly what you ordered, when it should arrive, and can verify that what shows up matches your expectations, you maintain control over your inventory and your cash flow. The time invested in proper PO creation and thorough receiving inspection pays for itself many times over through reduced errors, better supplier relationships, and reliable inventory data you can actually trust.