Purchase order
A purchase order is an official document a buyer sends to a seller to authorize and confirm a purchase.
A purchase order, or PO, is the buyer's version of putting an order in writing. It's a formal document that says exactly what the buyer wants to buy, in what quantity, and at what price. The seller's later invoice should match it. POs bring control and a paper trail to purchasing, which is why larger clients often require one.
What it means
A purchase order is created by the buyer and sent to the seller to authorize a purchase. Once the seller accepts it, the PO becomes a binding agreement to supply the listed goods or services at the agreed terms.
Each PO carries a unique PO number. The seller references that number on the matching invoice so the buyer can confirm the bill lines up with what they ordered. This "PO matching" is a core internal control in many businesses.
How it relates to invoices
The purchase order and the invoice are two sides of the same transaction.
- The buyer issues the purchase order to request and authorize goods or services
- The seller issues the invoice to request payment after delivery
- The invoice should reference the PO number so the two can be matched
- Matching the PO, delivery, and invoice helps catch errors and fraud
Example
A company sends purchase order PO-5589 to a supplier for 100 units at $10 each. The supplier delivers the units and then sends an invoice that references PO-5589 for $1,000. The buyer's accounts team matches the invoice to the PO and approves payment because everything agrees.
Frequently asked questions
What is the difference between a purchase order and an invoice?
A purchase order is sent by the buyer to order and authorize goods or services, while an invoice is sent by the seller to request payment for them. The PO comes first; the invoice follows after delivery.
Is a purchase order legally binding?
A purchase order generally becomes a binding contract once the seller accepts it, committing both sides to the listed items, quantities, and prices. The exact obligations depend on the agreed terms and local law.
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