What is a purchase order?
A purchase order (PO) is a document a buyer sends to a supplier to order goods or services, listing what it wants, the quantities, the agreed prices, the delivery date and the payment terms. Each PO has its own number. When the supplier accepts it, the order is agreed and the supplier can deliver and invoice.
Companies use purchase orders to control spending: someone approves the PO before money is committed, and accounts payable later checks the invoice against it. For the supplier, the PO number matters because many buyers will not pay an invoice that does not quote it.
The buyer's order.A purchase order is sent by the buyer to say what it wants to buy, at what price.
It comes before the invoice.PO first, then delivery, then the supplier's invoice quoting the PO number.
No PO number, no payment.Many accounts payable teams hold or reject invoices that do not quote a valid PO.
How the purchase order process works
- The buyer raises a purchase request, and a manager approves it.
- The buyer sends the supplier a purchase order with a PO number.
- The supplier accepts the order, delivers the goods or does the work.
- The supplier sends an invoice that quotes the PO number.
- Accounts payable matches the PO, the delivery record and the invoice, then pays.
That last step is the 3-way match. If the invoice price, quantity or PO number does not match, the invoice waits until someone fixes it.
What goes on a purchase order
PO number and dateA unique number the supplier will quote on the invoice.
Buyer and supplier detailsNames, addresses and contacts for both sides.
Items orderedA description, quantity and unit price for each line, with the total.
Delivery detailsWhere and when the goods should arrive or the work should be done.
Payment termsFor example net 30, and the currency.
You can make one with the free purchase order generator, which builds a PO PDF in a couple of minutes.
Purchase order vs invoice
| Purchase order | Invoice | |
|---|---|---|
| Sent by | The buyer | The seller |
| When | Before delivery | After delivery |
| Purpose | Order goods or services at agreed terms | Ask for payment |
| Effect in the books | None until goods arrive (a commitment, not a liability) | Records a sale for the seller and a bill for the buyer |
Under the US Uniform Commercial Code, an order for goods to be shipped promptly can be accepted by a prompt promise to ship or by shipping the goods (UCC section 2-206). Once it is accepted, the buyer and the supplier have a contract on those terms.
Why PO numbers delay payments
For suppliers, a common reason a large customer pays late is a missing or wrong PO number on the invoice. The invoice goes into an exception queue in the buyer's accounts payable system and often nobody tells the supplier until it is overdue. Ask for the PO before you raise the invoice, and put it on the invoice in a field the buyer's system can read. Our guide to PO numbers on invoices covers this in more detail.
Paidnice uses AI to spot when a customer needs a PO, drafts the email asking the right person for it, and adds the PO to the invoice in Xero or QuickBooks Online when it arrives. A person reviews anything that does not look right before it is used.
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