How to create a purchase order: A small business guide

Published Thursday 3 September 2026

Table of contents

• What is a purchase order?
• Purchase order vs invoice: What's the difference?
• What to include in a purchase order
• How to create a purchase order
• Understanding the purchase order process
• Setting up a purchase order number system
• Types of purchase orders
• Purchase order templates for Australian businesses
• Simplify purchase orders with Xero
• FAQs on purchase orders

Key takeaways

• A purchase order is a document the buyer sends to a supplier before goods or services are delivered.
• It becomes a binding agreement once the supplier accepts it, so both sides know what was agreed.
• A clear purchase order helps you control spending, look professional, and keep tidy records at tax time.
• You can start with a free template and move to accounting software as your order volume grows.

What is a purchase order?

A purchase order (often shortened to PO) is a document you send a supplier that lists exactly what you want to buy, in what quantity, and at what price.

You issue it as the buyer, and you send it before anything is delivered. It becomes a binding agreement once the supplier accepts it, so you're both clear on the order. Small businesses use purchase orders to control spending, avoid surprise costs, and keep a written trail of every order.

Think of it as an agreed written shopping list. You write down what you need, your supplier says yes, and there's no confusion later about the price or the quantity.

Purchase order vs invoice: What's the difference?

A purchase order comes first and is sent by you, while an invoice comes later and is sent by the supplier. They cover the same order from opposite sides of the deal.

Here's how the two documents compare:

• Who issues it: You (the buyer) create the purchase order; the supplier creates the invoice.
• When it's sent: The purchase order goes out before delivery; the invoice arrives after.
• What it's for: The purchase order requests and confirms the order; the invoice requests payment.

The two connect through matching. When the supplier's bill arrives, you check it against your original order to confirm the quantities and prices line up. If you'd like a refresher on the term itself, this plain-English breakdown of billing documents explains it simply.

What to include in a purchase order

A good purchase order leaves no room for guesswork. Include these details so your supplier can fill the order correctly and you can match it to the bill later.

• A unique PO number: a reference used to track this order and nothing else
• Your business details: your business name, address and ABN
• The supplier's details: their business name and contact information
• Key dates: the order date and the delivery date you expect
• An itemised description: a clear line for each of the goods or services you're buying
• Quantity and unit price: how many of each item, and the agreed price per unit
• GST and totals: the GST amount and the full total in AUD
• The delivery address: where the goods should be sent
• The payment terms: when and how you'll pay, such as 14 days from delivery

How to create a purchase order

Creating a purchase order takes only a few minutes once you know the steps. Work through them in order, and you'll have a clear document ready to send.

1. Gather the order details. Confirm what you're buying, the quantities, and the price you've agreed with the supplier.
2. Add your and the supplier's details. Include both business names, your ABN, and the relevant contact information.
3. Assign a unique PO number. Give the order its own reference so you can find it again later.
4. List each item with quantity and agreed price. Use a separate line for every product or service.
5. Add delivery and payment terms. State where the goods should go, when you need them, and how you'll pay.
6. Review and send it to the supplier. Check the figures, then email or hand over the finished document.
7. File a copy and match it to the invoice later. Keep your version so you can compare it to the bill when it arrives.

You can do all of this in a free template or in accounting software. To see how the order flows through into a bill, this guide to getting paid and paying suppliers walks through the wider cycle.

Understanding the purchase order process

The purchase order process is simply the journey from deciding to buy something to paying for it. Following the same steps each time keeps your buying organised and your records complete.

• Raise a purchase requisition. This is an internal request that asks for approval to buy something.
• Create and approve the PO. Turn the approved request into a formal purchase order.
• Send it to the supplier. Share the order so the supplier can prepare it.
• Wait for supplier confirmation. The supplier accepts the order, making it binding.
• Goods are delivered. The items arrive with a delivery docket listing what's in the box.
• Match the PO to the invoice. Check the supplier's bill against your original order.
• Pay the supplier. Settle the bill once everything lines up.

A purchase requisition is just the internal "can we buy this?" step. In smaller businesses it might be a quick word with you before the order goes out. Keeping this flow tidy also makes your money owed to suppliers far easier to track.

Setting up a purchase order number system

Unique PO numbers are what stop orders from getting mixed up. Each number links one order to its delivery and its bill, so you can always trace what was bought and whether it was paid.

You can number orders in a few ways. A sequential system simply counts up, such as 1001, 1002, 1003. A coded system adds useful information, like a date or a supplier prefix, so the number tells you something at a glance.

The one rule that matters: Never reuse a number. A short coded format works well for most small businesses, for example PO-2026-014 to show the year and the order count.

Types of purchase orders

Not every order works the same way, so there are a few types of purchase order to know. Most small businesses only need the first one, but it helps to recognise the others.

• Standard: a one-off order for specific goods or services, and the most common choice
• Planned: an order for known items where you set the delivery dates later
• Blanket: an ongoing agreement to buy from a supplier over time at set prices
• Contract: an underlying agreement that individual orders are then placed against

Purchase order templates for Australian businesses

A template saves you rebuilding the same document for every order. A good one already includes space for your ABN, the PO number, itemised lines, GST and the total in AUD, so you just fill in the details.

A free template is a sensible starting point when you place only a handful of orders. As your volume grows, retyping numbers and chasing matches by hand starts to eat your time. That's the point where software that raises and tracks orders for you becomes worth it, because it cuts the manual admin and the errors that come with it.

Simplify purchase orders with Xero

Once you're placing regular orders, doing it all by hand gets tiring fast. Xero lets you create and send purchase orders, track their status and match them straight to the supplier's bill, so nothing slips through the cracks.

Everything stays in one place, which means cleaner records and less chasing at tax time. You can get one month free and see how it fits the way you already work.

FAQs on purchase orders

Here are quick answers to the questions small business owners ask most about purchase orders.

Is a purchase order a legally binding document?

On its own it's an offer to buy, not yet a contract. It becomes legally binding once the supplier accepts it, which is why keeping the accepted version on file matters.

Can a small business use purchase orders without accounting software?

Yes. A simple template or even a well-formatted spreadsheet is enough when you place only a few orders, though software saves time as your volume climbs.

Who raises a purchase order, the buyer or the seller?

The buyer raises the purchase order and sends it to the supplier. The supplier responds with an invoice after the goods or services are delivered.

How is a purchase order different from a purchase requisition?

A requisition is the internal request asking for permission to buy something. The purchase order is the external document you send to the supplier once that request is approved.