What is a Purchase Order? Everything You Need to Know

Jun 9, 2020
7 minute read

A purchase order, also known as a PO, is a simple document that can make a significant difference in your business’ operations and accounting processes. No matter the size of your business, implementing a system for using purchase orders will keep things organized, traceable, and may even help save you money in the long run.

So, what is a purchase order, exactly?

A purchase order is a document that a buyer, or purchaser, issues to their supplier (also called the vendor or seller) to indicate what products or services they wish to purchase, in which quantity, and at what price. A PO will also indicate the terms of the purchase, such as when the order is expected to be delivered and what the payment terms are.

A purchase order serves many functions at once. Firstly, it provides an internal document in a company of what has been ordered and at what price. Secondly, it alerts a vendor that their customer would like to place an order with them and gives them an opportunity to accept the order. Finally, it acts as a legally binding document between the buyer and the seller. This gives every party involved some peace of mind. The buyer can be confident that their supplier is bound to deliver their order within the agreed upon time frame, and the supplier can be confident that the buyer is bound to pay for the order according to the terms outlined in the PO. 

Even though you might be able to get by without creating a system for issuing purchase orders, if your business is small, it’s never too early to start using them. They’re a great way to keep your spending organized and an important habit of getting into as your business grows, and it becomes more difficult to keep track of every order you make. Plus, many vendors will request that you send them a purchase order rather than just email them, so if you want to project professionalism, it’s wise to have a purchase order template you can use anytime. 

What is the process of using a purchase order?

Implementing the use of purchase orders in your business will entail more than just creating a purchase order template for you or your staff to use.  It’s also important to understand the process that is associated with the use of purchase orders, so that you can avoid confusion and get the most out of this useful document. Following these simple steps each time you create a new purchase order will prevent any hiccups:

  1. The purchaser, who may be you or someone else in your business which you have delegated this responsibility to, decides what product or service they want to buy. They should also know the pricing and lead time for this product or service. If they