What is a purchase order?
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A document a buyer sends a supplier to order goods, listing what, how many, at what price and when.
Definition
A purchase order (PO) is the document a buyer sends a supplier to order goods. It lists what is being bought, how many, at what price, where to deliver and by when. Once the supplier accepts it, it is the reference both sides use for delivery, invoicing and payment.
What a purchase order includes
- A unique PO number and the order date
- The buyer’s and supplier’s details, and the delivery address
- Each item’s SKU, description, quantity and unit cost
- Shipping, tax and the total
- Payment terms, such as a 30% deposit and the balance before shipping
- The deliver-by date, and who authorised the order
Make your own with the free purchase order template. You can fill it in online or download it as an Excel file.
Example
A brand orders 840 insulated bottles from its supplier at $6.40 each. PO-0042 lists the SKU, the quantity, the unit cost of $6.40 and a line total of $5,376. It adds $250 of freight to port, and the payment terms are a 30% deposit with the balance before shipping. The supplier confirms PO-0042, and quotes that number on its invoice and on the packing list that arrives with the goods.
How a purchase order is used
- Raise the PO for the quantity you need. In the UK this is often called “raising a purchase order”.
- Send it to the supplier and get their confirmation of price and date.
- Receive the goods and check them against the PO.
- Match the supplier’s invoice to the PO and to what arrived, then pay.
Step 4 is called a three-way match. It is the main way to catch short deliveries and wrong prices before you pay. See purchase order vs invoice.
Related terms
- Lead time: how long a PO takes to turn into sellable stock.
- Safety stock: the buffer that covers a late PO.
Frequently asked questions
What is a PO number?
A PO number is the unique reference for one purchase order, such as PO-0042. The supplier quotes it on their invoice and shipping documents, so every delivery and bill can be matched back to the order.
Is a purchase order legally binding?
A purchase order is an offer to buy. It generally becomes a binding agreement once the supplier accepts it, for example by confirming it in writing or shipping the goods. The rules depend on your country, so take legal advice for large or unusual orders.
Who creates a purchase order?
The buyer. In a small brand that is usually the founder or operations lead. In larger businesses a purchasing team raises POs after a manager approves the spend.
What is a blanket purchase order?
A blanket purchase order covers repeated deliveries of the same goods over a period, at agreed prices, up to a total amount. Each delivery is then called off against it instead of raising a new PO every time.