Business is not only vendors and buyers — there is a good deal of paperwork holding the two together. Newer businesses often have no clear picture of what a purchase order is or when they need one.
What a purchase order is
A purchase order (PO) is a document the buyer creates and sends to a supplier, indicating a purchase of goods or services. It sets out what is needed, how much of it, and the price the buyer expects to pay — plus the delivery address, where the goods are going somewhere other than the buyer’s own premises.
Once the supplier accepts it, the PO binds both parties to what was agreed, which is what keeps the transaction orderly from order to delivery to payment. That is why the usual flow is: the buyer raises the PO, sends it to the supplier, and the supplier confirms it.
It travels in the opposite direction to an invoice: the PO goes out from the customer, the invoice comes back from the supplier. See the difference between a sales order and a purchase order.
Why it matters to both sides
For the buyer, it is an authorisation record. Somebody with a budget approved this spend before it happened, which is what makes the eventual invoice payable without an argument.
For the supplier, it is confirmation to work from. A PO number on your invoice is often what gets it through the customer’s system — and its absence is one of the most common reasons a correct invoice sits unpaid.
For both, it prevents the expensive disagreement: what was ordered, in what quantity, at what price, for when.
The four types of purchase order
Most purchasing uses the first of these, but the terms come up often enough to be worth knowing.
Standard purchase order. The everyday one. You know what you are buying, how many, at what price and when you need it, so all of that is on the document. It commits both sides to a single, defined order.
Planned purchase order. Items and prices are agreed up front, but the quantities and delivery dates are estimates. Deliveries are then requested against it as you need them — useful where you know roughly what you will consume over a year but not exactly when.
Blanket purchase order. An agreement to buy up to an agreed value or quantity over a period at fixed prices, without committing to a delivery schedule at all. It is the loosest of the four, and it exists to lock in a price and avoid raising a new PO for every small order.
Contract purchase order. An umbrella agreement covering the terms — payment, liability, delivery conditions — with no items on it. Individual standard POs are then raised referencing the contract. This is the one you see between large organisations, where the terms are negotiated once and the orders follow.
What belongs on one
- Your details and the supplier’s — who is buying, who is supplying.
- A PO number, unique and sequential. This is what everything else references.
- The date, and the date you need delivery.
- The items — description, quantity, unit price and total.
- Delivery address, where it differs from your billing address.
- Terms — payment terms, and anything conditional about the order.
- Approval, where your process requires it.
How to create one
- Go to Purchase orders and start a new one.
- Select the supplier — their details fill in from the record you hold.
- Add the lines: what you are ordering, quantities and prices.
- Set the delivery date, the shipping address if it differs, and any terms.
- Check it, then send the supplier their copy.
Fill every field in properly rather than leaving the supplier to infer anything — the PO number, both sets of details, the shipping address, the lines and the subtotal. An ambiguous PO is one the supplier has to come back and ask about, which costs more time than filling it in did.
The step-by-step is in the help desk: create a purchase order.
When you actually need one
Not for every purchase. POs earn their keep when the amount is significant, when more than one person can commit spend, or when what you ordered and what arrives might differ.
For a recurring, predictable supplier cost a recurring purchase is usually a better fit than raising a PO each time.