What is a purchase order? When and how to use one
A purchase order confirms what you're buying from a supplier. Learn how POs work and when to use one.
Written by Kassi Luja—Finance copywriter, content supervisor, and editor. Read Kassi's full bio
Published Friday 6 November 2026
Table of contents
Key takeaways
- A purchase order is a document you send a supplier to request goods or services at agreed prices and terms, and it becomes a legally binding contract once the supplier accepts it.
- A purchase order and an invoice are different documents: you issue the purchase order before an order, and the supplier issues the invoice afterward to request payment.
- Every purchase order carries a unique PO number, which links the order to its invoice and keeps your records easy to track.
- A simple purchase order process helps a growing business control spending and keep a clear, audit-ready record, while making duplicate or fake invoices easier to catch.
What is a purchase order?
A purchase order (PO) is a document you send to a supplier to confirm the goods or services you want to buy. It sets out quantities, prices, and delivery terms. You create it as the buyer, before anything changes hands.
A purchase order starts as a formal request. Once the supplier accepts it, the purchase order becomes a legally binding contract between you. That gives both sides an agreed record to work from if a question about pricing or delivery comes up later.
Businesses use purchase orders to keep spending under control and to create a clear record of every order. Matching each order to its invoice reduces the risk of paying for goods that never arrived. It also gives you a clearer view of your cash flow.
What's included on a purchase order
A purchase order collects the key details of an order in one place, so your supplier knows exactly what you need. Most purchase orders include the following details:
- Buyer and supplier names and contact details
- A unique PO number for tracking
- The order date and required delivery date
- A description of each item or service, with quantities and unit prices
- The total order value
- Delivery address and shipping terms
- Payment terms, such as payment within 30 days
What is a PO number?
A PO number is the unique code you assign to a purchase order so you can track it from request to payment. It usually mixes letters and numbers. Many businesses use a simple sequential format such as PO-001 and PO-002, or one that includes the year.
The PO number does real work once the invoice arrives. Your supplier references it on their invoice, so you can match the invoice back to the original order. Checking the items, quantities, and prices before you pay keeps your accounts payable accurate and helps prevent duplicate payments.
Purchase order vs invoice
A purchase order and an invoice both appear in the buying process, but they do different jobs. You, the buyer, issue a purchase order at the start to request goods or services. Your supplier issues an invoice at the end to request payment for what they delivered.
The timing is the clearest way to tell them apart. A purchase order comes first and sets out what you intend to buy. An invoice comes after delivery and asks you to pay the agreed amount.
Here's a simple example. You send a supplier a purchase order for 50 boxes of packaging at a set price. The supplier accepts it, ships the boxes, and sends an invoice that references your PO number.
You then check the invoice against the purchase order and the delivery. If everything matches, you pay. This check is often called three-way matching, because it compares the purchase order, the delivery record, and the invoice before money goes out.
Types of purchase orders
Not every order needs the same kind of purchase order. There are four common types, and the right one depends on how often you buy and how much you know upfront:
- Standard purchase order: for a one-time order where you know the items, quantities, prices, and delivery date
- Planned purchase order: similar to a standard PO, but with a tentative delivery schedule you firm up later
- Blanket purchase order: for repeat purchases from one supplier over a set period, often up to a spending limit
- Contract purchase order: sets the overall terms with a supplier, with individual orders placed against it later
Most small businesses start with standard purchase orders and add the others as their buying becomes more regular. A blanket purchase order, for example, saves you from raising a fresh PO every time you reorder the same supplies from a trusted supplier.
The purchase order process, step by step
The purchase order process is the set of steps a business follows to request, approve, order, and pay for goods or services. Even a light version of this process brings order to buying. Here's how it usually runs:
- Identify the need, such as low stock or an upcoming project
- Raise a purchase requisition, an internal request that goes for approval so you confirm the spend fits the budget
- Create the purchase order and send it to your chosen supplier
- Wait for the supplier to confirm and accept the order
- Receive the goods or services and check them against the order
- Match the supplier's invoice to the purchase order and delivery record
- Approve and pay the invoice, then file the records
Steps five and six are where the process pays off. Checking the goods received and the invoice against the original purchase order catches duplicate bills and incorrect prices before you approve payment, and it flags any invoice for an order no one placed.
What to put on a purchase order template
A purchase order template saves you from rebuilding the same document every time you order. A good template keeps your business information fixed and leaves space for the details that change with each order.
At a minimum, a reusable template should carry your business details, a field for the PO number, and the supplier's details. It also needs space to list each item with quantities and prices, plus the delivery date, delivery address, and payment terms. Once you have that, each new order is a matter of filling in the blanks.
Many businesses start with a spreadsheet or document template, then move to accounting software as their order volume grows.
When your small business should start using purchase orders
Purchase orders earn their place as your buying gets busier. If you place only a handful of orders a year, an email may be enough. Once you're ordering regularly, spending across several suppliers, or bringing more people into buying decisions, a formal process gives you back control.
Signs it's time to start using purchase orders include:
- losing track of what you've ordered and what's still to arrive
- receiving invoices that no one recognizes or approved
- having more than one person able to commit the business to spending
- wanting a clear record ready for tax time or an audit
For a business scaling toward a larger team, a formal purchasing step often separates spending that's tracked from spending that's a surprise. Build the habit early, and it's far easier to keep as you grow.
Simplify your purchasing with Xero
Managing purchase orders by hand gets harder as your order volume grows. Accounting software with built-in purchasing keeps your orders, suppliers, and bills in one place. You can create a purchase order, send it to a supplier, and turn it straight into a bill without rekeying details.
That means fewer mismatches and a clearer view of what you've committed to spend. To see how it fits your business, get one month free when you sign up to Xero.
FAQs on purchase orders
Here are quick answers to some common questions about purchase orders.
Who is responsible for creating a purchase order?
The buyer creates the purchase order, usually whoever manages purchasing or the budget for that spend. In many businesses a manager approves it before it goes to the supplier.
What happens if a delivery doesn't match the purchase order?
Compare the delivery and the invoice against the purchase order, then raise any difference in quantity or price with your supplier before you pay. Holding payment until it's resolved protects you from paying for goods you didn't receive.
Can you cancel or change a purchase order after sending it?
Yes, as long as the supplier hasn't accepted it or started the order. Once it's accepted, you'll need to agree any change or cancellation with the supplier, since the purchase order is a binding contract at that point.