You call a supplier, ask for "the usual," and three weeks later an invoice shows up for something a little different, at a price a little higher, delivered to the wrong location. Nobody lied. There was just nothing in writing.
That is the problem a purchase order solves. It is a short document where the buyer spells out exactly what it is ordering, how many, at what price, where it should go and when. The vendor accepts it, ships against it, and bills against it. Everyone is looking at the same page.
Where a Purchase Order Fits
Buying something usually involves three documents, in this order:
- Quote — the vendor says what it will charge.
- Purchase order — the buyer says, in writing, "this is what we are ordering, on these terms."
- Invoice — the vendor asks to be paid for what it delivered.
If you are the seller, our invoice guide covers your side. This post is about the buyer's side.
When It Is Worth the Trouble
Not every purchase needs a PO. If you are a one-person business buying printer paper with a card, skip it. Purchase orders earn their keep when:
- The order is large enough that a mistake would hurt.
- You order the same things repeatedly and want consistent pricing.
- You are buying from a vendor for the first time.
- More than one person in your business can spend money, and you want a record of who approved what.
- A customer, lender or grant requires you to document purchases.
Some larger vendors and many government buyers work with purchase orders by default. If you sell to them, you will see their POs come in, and your invoice will need to reference the PO number to get paid.
What Goes on a Purchase Order
- PO number. One unique number per order. It is the thread that ties the order, the delivery and the invoice together.
- Date. The date the order was issued.
- Buyer information. Your business name, billing address, and a contact person with a phone and email.
- Vendor information. Their business name, address and contact.
- Ship-to address. Where the goods should go, if different from billing. This is where a lot of mistakes start.
- Line items. For each item, a clear description, the vendor's item or part number if they have one, the quantity, the unit price and the line total.
- Totals. Subtotal, shipping, any tax, and the grand total.
- Delivery date. When you need it, not just when you would like it.
- Payment terms. When you will pay after receiving the invoice, as agreed with the vendor.
- Approval. The name and signature of the person who authorized the purchase.
Whether sales tax applies depends on what you are buying, where it is delivered, and whether you hold a resale or exemption certificate. Ask your accountant how to handle it for your business rather than guessing on the PO.
A Purchase Order Template
[Your Business Name] — Purchase Order
PO number: [number] Date: [date]
Buyer: [business name, billing address, contact name, phone, email]
Vendor: [vendor name, address, contact name, phone, email]
Ship to: [delivery address and any delivery instructions]
Requested delivery date: [date]
Items:
[Item description] — Part no. [number] — Qty [number] — Unit price [amount] — Total [amount]
[Item description] — Part no. [number] — Qty [number] — Unit price [amount] — Total [amount]
Subtotal: [amount] Shipping: [amount] Tax: [amount] Total: [amount]
Payment terms: [as agreed with the vendor]
Notes: [Quote number this PO is based on. Please include this PO number on your invoice and packing slip.]
Approved by: [name, title, signature] Date: [date]
Write Descriptions Nobody Can Misread
"Paper, 10 boxes" can mean a lot of different things. "Copy paper, letter size, white, 10 cases of 10 reams" cannot. If the vendor sent a quote, use the exact item names and numbers from the quote, and put the quote number in the notes. If there is ever a disagreement, you can point to both documents and show they match.
Checking the Invoice Against the PO
The real value of a purchase order shows up when the bill arrives. Before you pay, line up three things:
- The purchase order — what you ordered.
- The packing slip or delivery record — what actually arrived.
- The invoice — what you are being charged for.
If all three agree, pay it. If they do not, find out why before paying. Common reasons: part of the order is backordered, the price changed, or the wrong item was shipped. Accountants call this a three-way match. In a small business it is a two-minute habit that catches real mistakes.
Changing or Canceling a PO
Plans change. If you need to change the quantity, the item or the date, do not just call. Issue a revised PO with the same number plus a revision mark (for example, "Rev. 1"), and note what changed. If you cancel, send the cancellation in writing and ask the vendor to confirm it. Check your terms first. Once a vendor has started custom work or shipped, canceling may not be free.
Your Standard Terms
Many businesses print a short set of terms on the back or bottom of every PO: what happens if a delivery is late, how damaged goods are handled, and that the PO number must appear on every invoice. Vendors often have their own terms too, and the two do not always agree.
A purchase order the vendor accepts can become a binding agreement. If you buy in significant amounts, have an attorney in your state review your standard terms once, and use them every time. Our contract templates guide covers the other agreements worth having in place.
Keep the Records
File each PO with its invoice and delivery record, by PO number. Keep a simple log of every number you issue so none are skipped or used twice. Ask your accountant how long your business should keep purchase records.
Questions people ask
What is the difference between a purchase order and an invoice?
The buyer writes the purchase order before the goods or services are delivered. It says what the buyer wants to buy and on what terms. The seller writes the invoice afterward. It asks to be paid for what was delivered. The invoice should match the purchase order.
What information goes on a purchase order?
A purchase order number, the date, the buyer's and vendor's names and addresses, where to deliver, a line for each item with a description, quantity, unit price and total, the delivery date, the payment terms, and the name of the person who approved it.
Does a small business need purchase orders?
Not for every purchase. They are most useful for larger or repeat orders, orders from new vendors, and any business where more than one person can spend money. A one-person shop buying office supplies with a card can usually skip them.
Is a purchase order a legally binding contract?
It can become one once the vendor accepts it, depending on its terms and your state's law. That is why the terms on the PO matter. If you are using purchase orders for significant amounts, have an attorney in your state review your standard terms.
How do you number purchase orders?
Use any system that never repeats a number. Many businesses start at a set number and count up, or add a year or department prefix. The point is that every PO has one unique number that appears on the vendor's invoice and your records.
This article is general guidance on business documents, not legal, tax or accounting advice. A template is a starting point, not a document drafted for your situation. Before you sign, send or rely on anything with legal or financial consequences, have it reviewed by an attorney or accountant licensed in your state.