What is a purchase order?
A PO puts a purchase in writing before it happens. It gives the buyer control over spending and gives the supplier clear instructions and confirmation of the order.
What a PO includes
- PO number
- Buyer and supplier details
- Item descriptions, quantities and unit prices
- Total amount and taxes
- Delivery address and date
- Payment terms
- Approval signature
The purchase-to-pay process
- Internal requisition and approval
- PO sent to supplier
- Supplier delivers goods; a goods received note (GRN) is recorded
- Supplier sends an [invoice](/glossary/invoice)
- Three-way match: PO, GRN and invoice are compared
- Invoice approved and recorded in [accounts payable](/glossary/accounts-payable)
- Payment made
Accounting
Issuing a PO doesn't create an accounting entry, because no liability exists yet. The entry is made when goods are received or the invoice arrives.
Benefits
- Controls spending with approvals and budgets
- Reduces errors and disputes
- Helps prevent fraud and duplicate payments
- Tracks open commitments