Purchase Order

A Purchase Order (PO) in ERPNext is a formal, legally enforceable document that the purchasing organization issues to a vendor. It is the official declaration of the company's intention to buy certain goods or services from a selected vendor in well-defined terms and conditions. The terms and conditions often involve item quantities, price, delivery date, taxes to be paid, and terms of payment.

The order for purchase is a contractual document and offers protection and clarity to the buyer and the supplier. It reduces misunderstandings by putting the agreed terms into writing.

Although a purchase order is similar in both structure and design to a sales order, the most notable difference is the direction of the transaction. transaction. A sales order is created when selling to customers, while a purchase order is created when purchasing from suppliers. In most instances, a PO is held internally but may also be shared with the supplier to acknowledge the order.

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Buying Flow in ERPNext

ERPNext has a well-structured procurement process flow. Purchase orders are only one part of the entire buying process, and for effective utilization, certain preliminary steps need to be accomplished before.

1. Prerequisites—What You Need Before Creating a Purchase Order

Prior to creating and submitting a purchase order successfully in ERPNext, the basic setup should already be done. These are the bare-bones master's accounts that the system requires:

• Supplier: The record for the supplier should have been made in the system. This covers their name, address, contact numbers, and payment terms. The PO cannot be initiated if no valid supplier is chosen.

• Item: All items that you plan to include in your purchase order must already be listed in the item master. The item master should have the necessary information, such as item code, description, default unit of measure (UOM), price, and default supplier if available.

Having these records set up in advance allows your purchase order to be auto-filled with consistent and correct information, minimizing manual data entry and errors.

2. How to Create a Purchase Orde

It is easy to make a purchase order in ERPNext, but it can be made in more than one way—either directly or by extracting information from other documents that are connected with the purchase order, like material requests or supplier quotations.

Steps to create a new purchase order:

1. Go to the list of purchase orders and click on the "New" button to begin a new entry.
2. From the dropdown, choose the right supplier from whom you are going to buy.
3. Please specify a required by date, which indicates when you would like the items to be delivered.
4. Select the item(s) in the Items Table using their item name or code. The item name, description, and default UOM will be retrieved automatically.
5. For every item, enter the required quantity. Prices, if already configured in the item master or through a price list, will be automatically retrieved.
6. Apply appropriate taxes and charges through predefined tax templates or manually enter them if needed.
7. After all the details are confirmed, save the document, and then submit it to confirm and complete the order.

Submitting the PO ensures that it's available in the system for subsequent activities such as receiving goods, invoicing, or making payments.

2.1 Setting Warehouses

ERPNext provides you with the option to set a target warehouse in the purchase order. You anticipate receiving and storing the delivered items here after delivery

Placing this warehouse on the header level also makes it easy and saves you typing since this position is automatically carried over to the Warehouse column for every line item in the Items Table. This is particularly useful if you want to deliver all the items you purchase to a single storage location.

2.2 Fetching Items from Open Material Requests

ERPNext can automate the purchasing process by taking item details directly from open Material Requests (MRs) of type Purchase.

To facilitate this:

• Ensure that the supplier is chosen in the PO.
• Ensure that the same supplier has been mentioned under Item Defaults in the item master.
• There should be a material request for such items, and it must be of open status.
• Click the Get Items from Open Material Requests button, which is located underneath the Supplier field.
• A window will pop up, listing all the material requests relevant to where the supplier matches.
• Choose the ones you need, then click Get Items. The system will automatically fill the purchase order items as per your selection.

3. Features

ERPNext provides an extensive list of advanced features to enhance your purchase order. These not only provide correct documentation but also smart integration with other modules like accounting, stock, projects, and subcontracting.

Let's consider the features one by one:

3.1 Address and Contact

It is also necessary to keep the address and contact details of the suppliers clean to facilitate smooth communication, accurate billing, and to ensure delivery of products on time. ERPNext makes this easier because stored information about the supplier is automatically retrieved in the supplier master as a purchase order is being created.

Supplier Address: The purpose of this address is billing to the supplier, i.e., the formal address at which the supplier would prefer to accept bills and communication. It has the effect of directing accounts payable documents to the appropriate destination, in terms of accounting. You can choose one of the addresses that have been saved with the supplier or you can create a new address right on the PO.

Shipping Address: This is where the supplier is heading to ship the goods or services as part of the purchase order. Shipment, tracking and confirmation of delivery: It is extremely significant when it comes to shipment, tracking and delivery confirmation especially when multi-location suppliers are involved.

Auto-Fetch from Supplier Master: If the Supplier's Address, Shipping Address, Contact Person, and Contact Email have previously been stored in the Supplier master record, ERPNext will automatically retrieve and fill them into the Purchase Order.

This streamlines manual entry, reduces errors, and accelerates the preparation of purchase documents.You can still make changes to these details if necessary, right within the PO.

3.2 Currency and Price List

ERPNext enables multi-currency transactions. You can specify the currency in which the PO is written—be it Pakistani Rupee, US Dollar, Euro, or otherwise.

If your business employs a standard price, you can use a price list like "Standard Buying," and the prices will be retrieved accordingly.

If for any reason you do not need to follow pricing rules (for example, minimum margins or customer-specific discounts), check the Ignore Pricing Rule box.

This tool comes in very handy when working with:

• Foreign suppliers
• Single-time price negotiations
• Supplier-specific bulk prices

Explore more about price lists and multi-currency transactions.

3.3 Subcontracting or 'Supply Raw Materials'

For businesses undertaking subcontracting, ERPNext has a unique feature where you can supply raw materials to a third-party supplier who will assemble or produce the end product.

To activate this:

• Mark the Supply Raw Materials checkbox.
• ERPNext will then enable you to choose a BOM (Bill of Materials) and enter the raw materials you will supply to the supplier.
• These materials can be traced with stock entries and reserved warehouses assigned.

This is essential for textile manufacturing, auto parts, packaging industries, etc., where production outsourcing is prevalent.

3.4 The Items Table

The Items Table is the central part of the Purchase Order where you enter and keep track of the inventory list of goods or services you are planning to buy. Each row of this table indicates a single item entry with certain information.

Key characteristics of the items table are:

• Barcode Scanning: Provided you have barcodes on your items and a barcode scanner, ERPNext provides support to scan the items one by one to the table. This accelerates the purchase entry process and eliminates error in manual typing.

• Auto-Fetched Details: The moment your item is selected based on the code, the system automatically retrieves the relevant information, including the name of the item, description, default UOM and item group.

• UOM Conversion Factor: Easy to use in purchasing goods in a single unit (e.g. boxes) and then putting them in a second unit (e.g. pieces). ERPNext contains the correct amount of stock defined by the conversion factor (e.g. 1 box = 12 pieces).

• Rates and Price Logic:

  • The Price List Rate: It is retrieved from the selected price list.
  • Last Purchase Rate: Displays the most recent purchase price of this item.
  • Manual Entry: Override the rate manually if necessary.

• Tax Management: You may add an Item Tax Template to implement certain tax rules to that item alone.

• Item Weight: In case the weight of the item is specified in the Item Master, it will be recalled. Otherwise it can be typed in. This is a useful feature in the calculation of freight.

• Warehouse Selection: The target warehouse of any item is automatically chosen as the warehouse category. It is still possible to change it item by item when it is delivered to more than one warehouse.

• Linked Documents:

  • Blanket Order: This PO may be associated with a blanket order that exists.
  • Project: Associate it with a project in which you can monitor procurement costs.
  • BOM: When dealing with manufacturing companies, a Bill of Materials linkage will help with production planning.

• Qty as per Stock UOM: Displays stock quantity in the defined Item Master unit of measure.

• Received Qty: Automatically updated with purchase receipts submitted.

• Accounting Fields:

  • Expense Account: The account where the cost of this purchase will be posted.
  • Cost Center: This is the business unit (e.g., department or project) absorbing the cost.

• Required By Date (Per Item): If you’re expecting partial deliveries, you can assign a different Required By Date to each item. This helps suppliers fulfil the order in parts and improves delivery tracking.

• Allow Zero Valuation Rate: When checked, ERPNext will also enable you to enter a Purchase Receipt with a 0 valuation rate on the item. This is applied to samples, free grabs or test materials.

3.5 Raw Materials Supplied

If the checkbox 'Supply Raw Materials' is ticked, ERPNext shows the Raw Materials Supplied section.

You can use this if you're shipping raw materials to a subcontractor for assembly or manufacturing.

This is how it works:

• Set Reserve Warehouse: You can designate a specific warehouse where your raw materials are reserved before sending them to the subcontractor.

Supplied Items Table

- **Required Quantity**: Pulled from the BOM; it indicates how many raw items are needed for manufacturing the final product.
- **Supplied Quantity**: This also updates when you enter stock entries to move the items to the subcontractor.

• Transfer Button: The action "Transfer" is used to enter the stock records displaying the flow of raw material between your reserve warehouse and the warehouse of the subcontractor.

This part guarantees proper monitoring and control of stocks within outsourced production flows.

3.6 Purchase UOM and Stock UOM Conversion

Goods in most industries are sold in a single unit (e.g. boxes, cartons or meters) but kept and dealt with in a different unit (e.g. pieces, kg or nos). ERPNext allows you to do this conveniently in UOM Conversion.

Steps to Handle UOM Conversion:

1. In Item Master, specify the stock UOM (e.g., Nos).
2. In the Purchase Order, fill in the UOM in which the supplier delivers the item (e.g., Box).
3. Define the UOM Conversion Factor (e.g., 1 Box = 12 Nos).

4. ERPNext will automatically calculate and retain the item's stock UOM when the goods are received.

This functionality makes inventory data accurate while also providing support for supplier-specific packaging.

3.7 Taxes and Charges

The supplier may charge you shipping costs, insurance costs, duty costs and other surcharges, which you can enter in the Taxes and Charges section of the Purchase Order.

Options available:

• Utilize a Purchase Taxes and Charges Template if your charges are standard across vendors.

• Enter new charges directly for one-off or supplier-related situations.

Every row enables you to specify:

• Tax Type (Actual, On Net Total, On Previous Row Total, etc.)

• Account Head (e.g., Input VAT, Shipping Charges, etc.)

• Charge Amount or Percentage

ERPNext calculates the total cost, including taxes, which helps you:

• Determine the landed cost of the item

• Account for input tax credits

• Generate compliant tax invoices

Shipping Rule

An ERPNext shipping rule is used to determine shipping charges to be charged on sale transactions. They may vary in relation to distance, order value, weight or delivery region. A shipping rule may consist of multiple shipping slabs to take into account different conditions, like higher prices on longer routes or heavier freights.

To correctly and consistently charge the delivery cost, shipping rules can be automatically applied to quotations, sales orders and sales invoices. To get more details on setups, visit the Shipping Rule documentation.

Example:

Suppose you buy at a price of X and resell at 1.3X. You pay 1.3X to your customer in tax, but have already paid X in purchasing. Thus you only pay the effective tax to the government on the 0.3X profit margin. In order to capture this in ERPNext, configure two tax accounts:

• Purchase VAT – X (Asset)

• Sales VAT – X (Liability)

This configuration enables ERPNext to calculate the tax automatically and display precise tax credits and liabilities within your reports.

3.8 Additional Discount

In addition to providing per-item discounts, you might also want to charge an overall discount on the entire purchase order.

ERPNext enables you to:

• Include a discount as a fixed value or percentage.

• Select whether to apply it to the Net Total (pre-tax) or the Grand Total (post-tax).

• It is especially useful when suppliers provide seasonal or bulk discounts that are applied to the whole order rather than each item. See Applying Discount for more information.

3.9 Payment Terms

Not everything is paid in a single instalment. ERPNext has a Payment Terms section for more involved payment schedules.

You may either:

• Choose a predefined payment terms template.

• Or enter payment milestones manually (e.g., 30% upfront, 70% on receipt)

Each payment milestone has:

• Percentage or Amount

• Due Date or Days after transaction date

This assists with forecasting payments and matching your supplier contracts, minimizing payment disputes.

Read Payment Terms to learn more.

3.10 Terms and Conditions

ERPNext enables you to attach a standard or customized terms and conditions document to your purchase order.

These may consist of:

• Delivery terms
• Purchase order
• Penalty clauses
• Return and replacement policies
• Quality assurance conditions

Once the document is attached, these terms will be displayed when you print or share it. This ensures that all concerned are on the same page with the procurement terms. Click here

3.11 Print Settings

ERPNext has adjustable print settings to control the look of your documents, including requests for quotation and purchase orders, when printed or exported to PDFs. These options ensure a professional appearance in keeping with your organization's image.

Letterhead

You can print the document, such as the Request for Quotation (RFQ) or Purchase Order (PO), on the official letterhead of your company. This gives authenticity and professionalization to the communication process with your suppliers. Letterheads can be configured globally or per transaction and can be customized with your logo, address, or other branding.

To set up letterheads, go to Letterhead Documentation.

Print Headings

With ERPNext, you can edit the print heading or title of your document at the time of printing. An example is instead of purchase order, you can call it Supplier Agreement or Material Purchase Document. This is useful when a company adopts a different naming criterion to meet certain documentation criteria.

3.12 More Information

The More Information section provides a snapshot of the Purchase Order’s status and progress:

• PO Status: Shows whether the order is Draft, Submitted, On Hold, Closed, etc.

• Items Received: Tracks what portion of the ordered items has been delivered.

• Items Billed: Indicates how much has been invoiced.

• Linked Sales Order: In case this PO belongs to an inter-company transaction, the sales order is indicated here.

This part is transparent and helps to track the performance of suppliers and procurement deadlines.

3.13 After Submitting

Once a purchase order is placed in ERPNext, it leaves a draft status and becomes an active document that may trigger a chain of the following operations. Submission finalizes the purchase order in order to proceed with further operations on receiving goods, invoicing and handling money.

• Update Items: After submitting the purchase order, you also can alter the purchase order using the update items feature. You can add, edit or delete items using this function as long as they are not already received. Articles ordered on a purchase receipt, on the contrary, can not be erased in the name of data integrity and inventory accuracy.

• Status Control: Hold or Close:

A purchase order may have its status changed based on the requirements of the business when it is sent:

- You can put the PO on hold which will put processing on hold, handy to check or verify information before continuing.

- Or you may want to close the PO to do not receive or process any outstanding items anymore.

These status controls also help manage workflow, and are real-time progress indicators in your procurement cycle.

• Create Documents from Purchase Order:

A purchase order submitted is the source used to create multiple downstream documents in ERPNext. They are:

- **Purchase Receipt**: It is created when goods or services are received. It is an acknowledgement of receipt from the supplier.

- **Purchase Invoice**: This is the invoice presented by the supplier for received goods or services. It records financial liability and taxation impact.

- **Payment Entry**: A Payment then records the transaction and is shown in the account balance of the supplier after payment has been made against the invoice or directly against the PO.

- **Journal Entry**: For instances where manual financial adjustments need to be made—such as accruals, prepayments, or corrections—a journal entry can be posted and referenced against the PO for accounting purposes.

4. Related Topics

• Request for Quotation (RFQ)
• Purchase Taxes and Charges Template
• Purchasing in Different Units
• Amending Purchase Order After Submission

5. More To Follow

• Zikpro ERPnext Demo

• www.zikpro.com