I have a vendor who has offered to sell me supplies on net 30 terms. The vendor has requested a formal purchase order for any supplies delivered before delivery. Why do I need to do this? More importantly, what should be on the document?
A purchase order is a document which specifies what terms you accept when ordering goods and services. It is a document which constitutes an offer to pay for goods and services under specific terms. On acceptance, this constitutes a contract.
In general you should specify on the purchase order what you are willing to see on the invoice. This includes quantities and amounts at purchase price, payment terms, and the like.
Since this is an offer for an invoice, typically everything applicable except for taxes, payments, and the like, should be on the purchase order. If the counterparty needs a VAT registration number, it should be there. If they need a company registration number, it should be there. Things beyond the control of the supplier (tax rates, etc) need not be on it, but if you expect tax to be included, you should specify this.
Most problems that occur in negotiating purchase orders in my experience come from one of two areas. Either incorrect prices are put in, or incorrect payment terms are displayed. If you offer to pay the net balance within 60 days, and the supplier expects within 30, they will reject your offer.
One way you can look at a purchase order is that it is essentially like a quotation but with the parties reversed. It is an invitation to contract, and the one you use if you are the purchaser. It is therefore very closely related to both invoice content (which represents a contractual obligation fulfilled and payment due), and quotations.