What is a Purchase Order?

Learn all about purchase orders (also known as POs), why they are issued, what they look like and what they mean to the businesses involved.

What is a Purchase Order?

A purchase order (PO) is a document issued by the business buying a product or service to the supplier it is buying from. The document contains details of the product or service they are buying including the cost.

Purchase orders are a legal document between a buyer and a supplier, almost like a contract, so for that reason, it is important that they include the right details of service and price.

Purchase orders are often issued with a unique number to help the business keep track of which ones they have sent out and the costs they have committed to. That means they one of the main types of source records in accounting.

The Difference Between a Purchase Order and Purchase Invoice

A purchase order is an agreement to buy a product or service, whereas a purchase invoice is a request for payment once delivery is complete. Often the buyer will ask the supplier to quote the purchase order number (PO number) on their invoice because that makes it easier to check the invoice is correct prior to payment.

Example Purchase Order

POs can take any format a business chooses, however, there is some key information normally included on the document for clarity and legal reasons:

  • Buyers name and address
  • Suppliers name and address
  • Purchase order number
  • Purchase order date
  • Details of the product or service
  • Unit and total price
  • Sales tax or VAT rate applicable
Purchase Order Example

Purchase Order Template

Here is a purchase order template for you to download and keep:

Free Download: Purchase Order Template

About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of www.goselfemployed.co - the UK small business finance blog for the self-employed community. Here she shares simple, straight-forward guides to make self-employment topics like taxes, bookkeeping and banking easy to understand.