Accounting technology / Glossary / Purchase order

What is a purchase order?

Definition

A purchase order, or PO, is a document a buyer sends to a supplier to order goods or services, listing the items, quantities, agreed prices, delivery date and payment terms. Once the supplier accepts it, it commits the buyer to pay on those terms, and it becomes the reference the supplier's invoice is checked against.

Also calledPO

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Issued by: The buyer
Checked against: Invoice and goods receipt
Shows: Committed spend before invoicing

How purchase orders work

A purchase usually starts as an internal requisition. Once it is approved against budget and policy, procurement or the requester raises a PO with a unique number and sends it to the supplier. The supplier quotes the PO number on its delivery note and invoice. When goods arrive, a goods received note records what came in, and accounts payable then matches invoice, PO and receipt before paying, the three-way match. Open POs show committed spend that has not yet been invoiced, which helps budget holders and cash forecasting. Blanket POs cover repeated purchases from one supplier over a period up to a limit. Many businesses set a value above which a PO is required, and exempt items such as utilities, rent and small card purchases. Procurement and ERP software create POs from approved requests and feed them to AP for matching.

Common questions

What is the difference between a purchase order and an invoice?+

The buyer issues a purchase order before the purchase to say what it wants and at what price. The supplier issues an invoice after delivery to ask for payment, quoting the PO number.

Is a purchase order legally binding?+

Once the supplier accepts it, by confirming or by delivering, it usually forms a contract on the PO's terms, unless a separate contract already governs the purchase.

What is a blanket purchase order?+

A single PO covering repeated orders from one supplier over a period, up to an agreed value or quantity. Each delivery is released against it rather than raising a new PO each time.