Blog · Purchase order basics
What is a purchase order?
A purchase order (PO) is the document a buyer sends a supplier to say exactly what it wants: the items, quantities, prices, delivery and terms, under a numbered reference. The buyer writes it before the goods or services arrive and before any invoice. Once the supplier accepts it, both sides usually treat it as the agreed basis for the sale, which is why it is worth getting right.
A plain definition
Think of a purchase order as your side of the deal, written down. A quote is the supplier telling you what they can supply and for how much. A purchase order is your reply: this is what we want, at this price, delivered here, by this date, on these terms.
Because it carries a unique number, a PO also gives everyone a reference for the rest of the purchase. The supplier quotes it on the delivery note and the invoice. Your team quotes it when they chase or query anything. Months later, the number is how someone finds out what was ordered and who agreed to it.
What a purchase order contains
Layouts differ, but a complete PO carries the same core details. Leave one out and someone ends up phoning to ask.
- The buyer. The legal name, address and VAT or company registration number of the entity that is buying. If your group has more than one company, this tells the supplier which one to invoice.
- The supplier. Their name, address and contact details, as they appear on their own paperwork.
- A unique PO number and the date of issue. Numbers run in sequence and are never reused.
- The lines. For each item or service: a description, quantity, unit price and line total, with the supplier’s product code or quote reference where there is one.
- Totals. The total excluding tax, the tax, and the total including tax, in the currency of the order.
- Delivery. Where the goods should go, by when, and who to contact on site.
- Terms. Payment terms, and a reference to your standard terms and conditions if you have them.
Who raises it and who issues it
The person who needs something is rarely the person who should commit the business to paying for it, so teams split the job. Someone raises a request, often called a purchase requisition, describing what they need and attaching the supplier’s quote. Someone with authority over that amount approves it. Only then is the purchase order issued and sent.
In a small business one person may do two of those steps, and that is fine as long as nobody approves their own spending. As the team grows, who approves usually depends on the amount: a site manager signs off small orders and larger ones go to a director. Approval paths shows one way to set that up.
The PO itself always comes from the buyer. A supplier may reply with an order confirmation or acknowledgement, but that is a different document.
What it means once the supplier accepts it
In the UK and South Africa, a purchase order is commonly treated as the buyer’s offer to buy on the terms it states. When the supplier accepts it, by confirming in writing or simply by delivering, the two sides usually have a contract on those terms. Before acceptance, the buyer can generally change or withdraw it.
Two things complicate this in practice. Suppliers often reply with their own terms, and which set applies can depend on who sent what, and when. And a PO that leaves out the price, quantity or delivery date leaves room for argument later. Neither is a reason to avoid purchase orders. Both are reasons to make them complete and to keep the supplier’s reply with the order.
This is a general description, not legal advice. If a large or unusual order depends on whose terms apply, ask a lawyer before you send it.
From request to invoice
A purchase moves through the same stages whatever tool you use. Approval, sending the order and the supplier’s acceptance are separate events, and it helps to record them separately: an approved order that never reached the supplier is a common source of late deliveries.
Orders change along the way. If the need changes after the PO has gone, revise it or cancel it and tell the supplier, so nobody delivers or pays against an outdated version.
- Someone needs something and gets a quote from a supplier.
- They raise a purchase request with the details and the quote attached.
- Someone whose authority covers the amount approves it, or sends it back.
- The approved request becomes a numbered purchase order, sent to the supplier.
- The supplier accepts the order and delivers the goods or does the work.
- Someone checks what arrived against the order.
- The supplier’s invoice arrives quoting the PO number. It is checked against the order and the delivery, then paid.
How it differs from a quote, a requisition and an invoice
The four documents are easy to confuse because they all describe the same purchase. The difference is who writes each one, when, and what it is for.
| Document | Written by | When | What it does |
|---|---|---|---|
| Quote | The supplier | Before you decide | States what the supplier can provide, at what price, usually for a limited period |
| Purchase requisition | The colleague who needs it | Before approval | Asks for permission to spend inside your business; the supplier never sees it |
| Purchase order | The buyer | After approval, before delivery | Orders the goods or services from the supplier on stated terms |
| Invoice | The supplier | After delivery, or on agreed dates | Asks for payment for what was supplied, quoting the PO number |
When a small business starts needing them
Plenty of businesses run for years on a phone call and a company card. Purchase orders start to earn their keep when one of the things below begins to happen.
You do not need a PO for every box of printer paper. Many teams set a value below which a card or petty cash is fine, require a PO above it or for any new supplier, and write that rule into a short purchasing policy.
- More than one person can commit money, and you only find out about spending when the invoice arrives.
- Suppliers start asking for a PO number before they will deliver or invoice.
- An invoice turns up with a price or quantity nobody remembers agreeing.
- You buy for more than one company or site, and goods or invoices go to the wrong one.
- An auditor, a funder or a new finance lead asks who approved a purchase, and the answer is somewhere in an inbox.
Questions
Is a purchase order legally binding?
Not on its own. A PO is commonly treated as the buyer’s offer, and it usually becomes binding once the supplier accepts it, in writing or by delivering. For a high-value or disputed order, check with a lawyer.
Who issues a purchase order, the buyer or the seller?
The buyer. The supplier issues the quote before it and the invoice after it, and may send an order confirmation in reply.
Does a purchase order include VAT?
It usually shows the total excluding VAT, the VAT, and the total including VAT, so the supplier and your approver see the same figures. How VAT applies to a particular line is a question for your accountant, or for HMRC or SARS guidance.
What is a PO number?
The unique reference printed on each purchase order. The supplier quotes it on delivery notes and invoices, which is how an invoice is tied back to what was ordered and who approved it. Numbers should run in sequence and never be reused.
Do I need a purchase order for every purchase?
No. Many businesses set a value below which a card or petty cash is enough, and use purchase orders above it or for any new supplier. Write the threshold down so everyone applies the same rule.