Blanket purchase orders (BPOs) facilitate payments made by a business for the same services and commodities. Also called standing purchase orders, BPOs eliminate processing delays and significantly improve the efficiency of a company’s accounts payable department.
Continue reading to learn more about the advantages of BPOs and how to use a blanket purchase order template to streamline your accounts payable and accounts received systems.
What is a Blanket Purchase Order?
BPOs are legally binding documents that commit buyers to recurring purchases of a specific and fixed amount of products or services from another company. Analogous to long-term contracts, blanket purchase orders include information like a product or service description, the quantity being ordered and paid for, the date of the transaction, and the PO number.
When suppliers and buyers agree on the conditions of a BPO, this allows products or services to ship at preset intervals without needing to draw up new invoices. BPOs provide legal assurance that buyers receive steady deliveries of products at a particular location. A BPO also provides legal assurance to suppliers that they can expect to sell an exact amount of products in a predetermined period of time.
When to use a blanket purchase order?
BPOs should only be used when:
- Costs of services or products are expected to remain fixed over an extended time
- Buyers want to purchase bulk quantities of the same product from the same supplier for at least one year
- Both buyers and suppliers can commit to fulfilling a BPO’s requirements according to the time agreement established in the BPO
BPOs should not be used when the cost of a product has a history of instability or the quality of goods or services is prone to ambiguity. Buyers should also beware of signing blanket purchase orders if a seller can’t be fully verified as a trustworthy, credible vendor.
What to Include in a Blanket Purchase Order?
Standard BPOs should include the following:
- Name, address, and contact information of the buyer
- Name, address, and contact information of the seller
- A unique order number for tracking individual business transactions
- Description of goods shipped and purchased (quantity, cost per unit, total price of the shipment)
- Address where the goods are to be shipped
- Delivery date (when the buyer expects the arrival of the goods shipped)
- Billing address (where the invoice should be sent so the purchaser can remit the cost of the shipment to the supplier)
- Signature of the buyer paying for the shipment
- Signature of the seller accepting the validity of the payment
- Order date (date on which the transaction was completed)
Advantages and Disadvantages of a Blanket Purchase Order
While the benefits of BPOs are numerous and varied, there are some drawbacks to using blanket purchase orders. Before deciding to implement a blanket purchase order template for buying or selling transactions, learn more about their advantages and disadvantages.
Advantages of a Blanket Purchase Order
Simplifies the Buying and Selling Process
Instead of constantly dealing with invoices, transactions between suppliers and purchasers are encapsulated in one legal document.
Legal Protection for Vendors and Suppliers
Provides legally protected support for a company’s operational continuity by ensuring the sale or delivery of services or goods.
Locks in prices for the time period agreed upon by sellers and buyers. This further helps decrease the risk of dealing with unstable profit margins due to market fluctuations.
Helps Eliminate Inventory Issues
Mitigates the common problem of inventory shrinkage for vendors if a buyer wants to purchase an enormous amount of goods at one time. With a blanket purchase order, vendors know exactly how many units they will need to restore normal inventory levels.
Disadvantages of a Blanket Purchase Agreement
Ability to Accurately Predict Future Product Needs
Newer, less established businesses may find it difficult to forecast how many units they will need from a particular vendor. Unless a company can refer to past information about their product requirements for a year or more, it’s best to use a standard purchase order.
Invoice and Order Matching
Although a BPO is just one document, buyers will receive several invoices from suppliers that need to be matched to deliveries. Depending on the size of the purchasing company and its method of keeping track of invoices, the ability to match orders and invoices could be challenging if the company doesn’t have the appropriate software for maintaining accurate records.
Blanket Purchase Order vs Purchase Order
While BPOs are strictly for legalizing an agreement over recurring, long-term orders, POs are meant for short-term or one-time orders. For example, Company A wants to purchase bulk orders of wood pallets every month from Company B for the next two years. Company A and Company B would benefit from drawing up a blanket purchase order.
However, Company C wants to make monthly purchases from Company B for just six months. In this case, the best legal agreement to accommodate Company C’s transaction would be a standard purchase order.
Blanket Purchase Order Sample
Below, you can download a blanket purchase order template that just needs to be filled out and signed by the parties involved to make it a legally binding contract.
Blanket Purchase Order