An order letter, also called a purchase order, is a formal letter issued by businesses to order goods or services from a vendor. This letter functions as a contract between the buyer and the seller, according to About.com. It outlines the details of the merchandise or service, including price, quantity, terms, mode of payment, requested delivery date and the address of the location where the order should be delivered.
Normally, a sales quotation or offer letter is required before a commercial entity issues order letters. A copy of the offer letter is then attached to the order letter to serve as proof in case a dispute arises between the buyer and the seller. The document also protects the seller in case the buyer refuses to pay.
Businesses usually issue order letters to explicitly express their intentions to chosen vendors after going through a process called purchase requisitioning. This is a process in which procurement agents of a buying company invite potential suppliers to bid for goods or services requested by a department within the company. The procurement agents then award the order, via issuance of a purchase order, to the vendor with either the lowest offer or best terms of payment.