Purchase order (PO)
A document a buyer sends a supplier to order specific goods or services at an agreed price, before they are delivered or invoiced.
In short
- It commits the budget before money is spent, not after.
- It is the first leg of a three-way match.
- Once the supplier accepts it, it usually becomes a binding contract.
A purchase order, or PO, is the buyer's formal order. It lists what is being bought, quantities, prices, delivery date and location, payment terms and a PO number that the supplier should quote on its invoice.
What is a PO number?
The PO number is the unique reference the buyer gives each purchase order, usually sequential and sometimes with a prefix for the year or department, such as PO-2026-0412. The supplier quotes it on the packing slip and the invoice, and the buyer uses it to find the order, check what was received and match the bill. Many buyers hold or return invoices that arrive without one. If a customer gives you a PO number, copy it onto your invoice exactly as written. If you are the buyer, give it to the supplier before they ship.
Why businesses use them
- Control before spending: the purchase is approved when the PO is raised. Budget owners agree to spending before it happens rather than seeing an invoice afterwards.
- Agreed prices: the PO fixes the price. An invoice that bills more is easy to catch.
- Matching: the PO is the reference point for the goods received note and the invoice in a three-way match.
- Commitments: open POs show money that is committed but not yet spent, which helps with budgeting and cash planning.
When a PO is not worth it
Raising, approving and matching a PO has a cost. For small or recurring purchases, businesses often skip it: utilities, subscriptions and low-value items bought on a purchasing card rarely have POs. A common policy is "no PO, no pay" above a threshold, with clear exceptions below it.
A blanket PO covers repeated purchases from one supplier over a period, up to a total value. Each delivery does not need its own order.
Worked example
A PO from request to invoice
A lab manager needs 20 pipette sets at $145 each. Their approved requisition becomes PO 7731 for $2,900 plus tax. The supplier ships 20 sets and the receiving clerk records them against the PO. The invoice quotes PO 7731, bills 20 at $145, and clears the three-way match without anyone touching it.