Quotation and Purchase Order are different documents which are issued by different parties in a trade negotiation.
What is a Quotation?
Quotation is the first step of the procurement or purchasing
process for the entity (or person). Quotations are requested by customer
companies to get an idea about prices and forecast the expense. Customers can
compare the prices and other components with few or many sellers. There is no
legal bound issuing or receiving a quotation. The quotation includes unit
price, warranty details, seller details, other benefits like after-sales
services, etc. A supplier must stick to the price mentioned in the quotation
for a certain period, but the supplier is legally not bound by it. Normally
supplier mentions the time the quotation is valid.
What is a Purchase Order?
A purchase order is a documental order sent by a customer to
supplier/seller requesting the goods or services. Customers raise this document
to supplier/seller mentioning the required no of units, Brand, or type, also
with other requirements. Purchase order is sent after getting the final
decision for purchasing, but customer is still not bound legally bound to
purchase the goods or services. The supplier is sending or selling the goods or
services based on the specimen of the purchase order. After delivering the
goods or services, invoices are also raised based on the purchase order
(subject to goods returns).
Where is Purchase Order and Quotation placed in procurement cycle?
The length of the procurement cycle depends on the size of
the organization. Normally small companies do not follow complex procedures and
processes. Sometimes they do not issue purchase orders. Some time they do not
request quotations from different suppliers before deciding the purchase. But
medium size and larger size companies follow the full process of the
procurement process. The first step of the process of procurement is requesting
quotations from the supplier. After analyzing the cost and benefits from all
quotations, customers send the purchase order to the supplier. Based on the purchase
order, supplier sends the goods. At that time customers are issuing the GRN
(Goods Received Note) internally. Then customer can compare the GRN and the
purchase order. After that customer receives the invoice and customer can check
the invoice against purchase order, GRN and quotation.
Journal Entry for Quotation and Purchase Order
The Quotation or Purchase Order does not record any journal entries.
But companies raise purchase order or Quotation via accounting systems &
keep it in data base for the convenience of raising the invoice. Invoice can be
generated without any data entry from the system using the quotation or
purchase order.
Process of issuing a Quotation
- 1. The Request receive from customer for a quotation.
- 2. Supplier/Seller prepares the quotation based on agreed rates or common rates via system or manual.
- 3. Printing the quotation and issuing to customers
Process of issuing a Purchase Order
- 1. Taking the purchase decision based on the quotation or Performa invoice.
- 2. Preparing purchase order based on the rates of quotation and approvals from management.
- 3. Printing the purchase order and sending it to supplier/Seller
Tax impact on Quotation and Purchase order!
Since these are nominal documents, there is not any bound to
any law. Hence the taxes will not be recorded with quotation or purchase order
issuing.
How digitalization impacted quotation and purchase order
With the digitalization, the life span of the procurement
process has been shortened. Earlier companies had to issue quotations and
purchase orders in hard copies and had to sign and stamp on that. But nowadays
everything happens by digital methods. Customers can request quotations by
email or through web site and supplier can deliver them via email. Same as the
purchase order can be requested and delivered digitally.
Also, companies can do all the steps via system or email in the procurement process. They can approve, check documents via email or system.
Quotation Format
Purchase Order Format
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