What Is a Purchase Order? How POs Work, Step by Step

A purchase order is the document a buyer sends a supplier to confirm what they are ordering, how many, at what price and by when, before any invoice arrives. It turns a quote or a phone call into a written order both sides can check the delivery and the bill against. For a small business, it is the simplest way to make sure the invoice you receive matches what you actually agreed to buy.

What a Purchase Order Is For

A purchase order is a document a buyer sends to a vendor, listing exactly what they're ordering, the quantity, the agreed price, and when they need it delivered. It's issued before the vendor invoices for the order, and it becomes the reference both sides check the final invoice against.

Its purpose is protection on both sides. The buyer has proof of the price they agreed; the supplier has written confirmation that the order is real before they spend money fulfilling it. Many larger companies won't pay any invoice that doesn't quote an approved PO, which is why suppliers often ask for one before they start.

How purchase orders work, step by step

1. The buyer gets a price: from a quote, a price list or a conversation with the supplier.
2. The buyer sends a purchase order: with a PO number, the items, quantities, agreed prices and delivery date.
3. The supplier accepts it: by confirming in writing or simply fulfilling the order. From here, both sides are working to the same document.
4. The goods or work are delivered: often with a delivery note that quotes the PO number. The buyer can record what actually arrived with our goods received note generator.
5. The supplier invoices: quoting the PO number on the invoice.
6. The buyer checks and pays: the invoice is compared with the PO and what arrived, and paid if they match.

A purchase order usually carries these fields:

If you are the supplier on the other side, the most important field is the PO number: it has to appear on your invoice. Our guide to the PO number on an invoice covers where it goes and what happens when it is missing.

How a purchase order differs from an invoice

A purchase order also isn't a quote. The quote is the supplier's offer; the PO is the buyer's acceptance of it. Our comparison of purchase order vs quotation walks through how the two connect.

When a small business should send one

Purchase orders feel like corporate paperwork, but the problem they solve applies to a two-person business as much as a large one: without something in writing, a supplier invoice with a different price or quantity is your word against theirs. Send a PO when any of these apply:

• You order from the same supplier regularly and want every order on record.
• The order is large enough that a wrong price or quantity would hurt.
• The price was agreed verbally or by phone and you want it locked in.
• You are hiring a subcontractor and want the scope and price written down before they start.
• More than one person in your business places orders, and you need to see what is already committed.

If two or more of those are true, the few minutes a PO takes will pay for themselves the first time an invoice doesn't match. Our purchase order generator numbers each PO for you and gives you a PDF to send to the supplier.

When to Skip One

For a one-off, low-value purchase from a supplier you deal with regularly, a PO can be overkill. The same goes for anything you pay for at the counter or online at a fixed price: the receipt already records what you bought. A PO earns its keep when the price, quantity or delivery date needs to be agreed in writing before anything ships.