When you're ordering from suppliers every week, things get messy fast. What did we actually order? When is it arriving? What price did they quote?
Purchase orders bring order to this chaos.
Purchase Order Definition
A purchase order (PO) is a formal document from a buyer to a supplier that specifies products, quantities, prices, and delivery terms. It's an official request to buy goods—and once accepted by the supplier, it becomes a legally binding agreement.
Think of a PO as a contract in advance. It protects both parties by documenting exactly what's being bought and sold, at what price, and when it should arrive.
Why Purchase Orders Matter
They Create a Paper Trail
When something goes wrong—wrong quantities, wrong products, late delivery, pricing disputes—the PO is your reference point. It documents what was agreed before any problems occurred.
They Enable Planning
An open PO represents inventory that's on the way. Your planning systems need to know about incoming stock to calculate reorder points and projected inventory levels accurately.
They Control Spending
POs create a formal approval process for purchases. This prevents unauthorized buying and helps finance track committed spend before invoices arrive.
They Improve Supplier Relationships
Clear, consistent POs make life easier for suppliers. They know exactly what you want, reducing errors and back-and-forth communication.
Key Fields on a Purchase Order
PO Number
A unique identifier for tracking the order through its lifecycle. Sequential numbering (PO-2024-0001, PO-2024-0002) is common and makes it easy to reference specific orders.
Vendor Information
Supplier name, address, and contact details. Make sure this matches the supplier's records to avoid confusion.
Ship-To Address
Where the goods should be delivered. This might be your warehouse, a 3PL, or a retail distribution center.
Line Items
The heart of the PO—what you're ordering:
- Product/SKU identifier
- Description
- Quantity
- Unit price
- Extended price (quantity × unit price)
Order Date
When the PO was created and submitted to the supplier.
Expected Delivery Date
When you expect to receive the goods. This becomes the target date for tracking.
Payment Terms
When and how you'll pay—Net 30, Net 60, payment on receipt, etc.
Special Instructions
Packing requirements, labeling standards, delivery windows, or other specifications.
The Purchase Order Process
Step 1: Identify Need
Inventory drops to reorder point, or planning system generates suggested order. Someone recognizes that it's time to buy more product.
Step 2: Create PO
Draft the purchase order with all required information: supplier, products, quantities, prices, delivery date.
Step 3: Approve (if required)
Larger organizations require approval before POs are issued. This might be based on dollar thresholds or product categories.
Step 4: Send to Supplier
Transmit the PO to your supplier via email, EDI, or supplier portal. This is the official request to buy.
Step 5: Supplier Confirmation
Supplier acknowledges the PO and confirms they can fulfill it as specified—or proposes changes.
Step 6: Fulfillment
Supplier produces or pulls the goods and ships them to your specified location.
Step 7: Receipt
You receive the shipment, verify quantities and condition, and update your inventory system.
Step 8: Invoice Matching
Supplier sends an invoice. You match it against the PO and receiving records (three-way match) before approving payment.
PO Status Tracking
Purchase orders move through several statuses:
- Draft: Created but not yet sent
- Submitted: Sent to supplier
- Confirmed: Supplier has acknowledged
- In Transit: Goods have shipped
- Partially Received: Some items received
- Received: All items received
- Closed: Complete and matched to invoice
- Cancelled: Order cancelled
Tracking status accurately lets you know where every order stands at any moment.
Purchase Order vs. Invoice
These documents flow in opposite directions:
Purchase Order: From buyer to supplier, requesting goods. Issued before the transaction.
Invoice: From supplier to buyer, requesting payment for goods delivered. Issued after the transaction.
The PO says "please send me these things." The invoice says "you received these things, please pay."
PO Management Best Practices
Use Unique PO Numbers
Every PO should have a unique identifier. Never reuse numbers, even if an order is cancelled.
Match POs to Receipts
When inventory arrives, record it against the specific PO. This closes the loop and enables three-way matching.
Track Expected vs. Actual Delivery
Monitor which suppliers consistently deliver on time and which don't. This data improves your lead time planning.
Clean Up Stale POs
POs that have been open too long without receiving deserve attention. Either the goods are truly late, or the PO should be closed or cancelled.
Integrate with Inventory Planning
Your inventory planning system should know about open POs. Incoming orders reduce the urgency to place new orders.
Key Takeaways
- A purchase order is a formal document requesting products from a supplier
- POs create a paper trail, enable planning, control spending, and improve supplier relationships
- Key fields include PO number, vendor info, line items (products/quantities/prices), and expected delivery date
- Track PO status from draft through receipt and invoice matching
- Open POs represent incoming inventory—your planning systems need this visibility
Frequently Asked Questions
Q: What is a purchase order?
A purchase order (PO) is a formal document from buyer to supplier that specifies products, quantities, prices, and delivery terms. Once accepted by the supplier, it becomes a binding agreement.
Q: What's the difference between a purchase order and an invoice?
A PO goes from buyer to supplier requesting goods. An invoice goes from supplier to buyer requesting payment after goods are delivered. The PO comes first; the invoice comes after.
Q: Why do I need purchase orders?
POs create a documented trail of what was ordered, at what price, and when it should arrive. They protect you in disputes, enable inventory planning, and control spending.
Q: What information should be on a purchase order?
Essential fields include PO number, supplier details, ship-to address, line items (products, quantities, prices), order date, expected delivery date, and payment terms.
Q: How do I track purchase order status?
POs typically move through statuses: Draft → Submitted → Confirmed → In Transit → Received → Closed. Tracking against expected delivery dates helps identify late orders.