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What is a Purchase Order?

A purchase order (PO) is a commercial document a buyer sends to a supplier to authorise the purchase of specified goods or services at agreed prices, quantities, and delivery terms. Once the supplier accepts it, the PO becomes a legally binding contract, and it is the document the supplier’s invoice is matched against before payment is approved.

The purchase order is the buyer’s side of a controlled procurement process. It commits the buyer to pay and the supplier to deliver, and it does so before any money changes hands — which is why it is the backbone of spend control. A typical PO carries a unique number, the buyer’s and supplier’s details, line items with descriptions, quantities, and unit prices, delivery dates and shipping terms, and the agreed payment terms. Internally it is usually approved against a budget before it is sent, so that nobody in the business can commit money without authorisation.

The PO’s second job is invoice matching. When the supplier’s invoice arrives, the accounts team performs a three-way match: the invoice is checked against the original PO (was the price right?) and against the goods-received note (did the right quantity actually arrive?). If all three agree, payment is approved. If they do not, the discrepancy is investigated before any money leaves. This single control catches overcharging, short deliveries, and duplicate invoices — the three most common sources of procurement loss.

Example

A restaurant manager sends a PO to a wine supplier for 48 bottles of a specific vintage at €18 per bottle, delivery within seven days. When the supplier’s invoice arrives for 48 bottles at €18, it is matched against the PO and the delivery note, approved, and paid — with no risk of being charged for bottles never ordered or never delivered.

Questions

What is the difference between a purchase order and an invoice?

A purchase order is sent by the buyer to the supplier before delivery — it authorises the purchase and commits the buyer to pay. An invoice is sent by the supplier to the buyer after delivery — it requests payment. The PO starts the transaction; the invoice closes it, and a well-run accounts team matches the two before paying.

Is a purchase order legally binding?

Yes, once the supplier accepts it. The PO is an offer to buy at stated terms; acceptance — whether by acknowledgement, shipment, or performance — converts it into a binding contract. Both parties are then obligated: the supplier to deliver the goods or services as specified, and the buyer to pay the agreed price.

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