What is a purchase order (PO)?
A purchase order (PO) is a commercial document a buyer issues to a supplier to confirm a purchase. It lists the items, quantities, agreed prices, delivery, and payment terms, and becomes a legally binding contract once the supplier accepts it.
A purchase order (PO) is the buyer's official offer to a supplier to buy specified goods or services at agreed prices and terms. Unlike a purchase requisition, which is internal, the PO goes out to the vendor. Once the supplier accepts it, the PO becomes a legally binding contract — which is why it carries a unique PO number used for tracking, receiving, and invoice matching.
What a purchase order contains
- PO number and date — a unique reference for tracking and matching.
- Buyer and supplier details — names, GSTINs, and billing/shipping addresses.
- Line items — description, quantity, unit price, and applicable GST.
- Delivery terms — ship-to location, Incoterms, and need-by dates.
- Payment terms — e.g. net 30, advance, or milestone-based.
Purchase order example
After approving a requisition for 500 cartons of packaging, procurement issues PO #PO-2026-0412 to the winning vendor: 500 cartons at ₹140 each = ₹70,000, plus 18% GST of ₹12,600, total ₹82,600, delivery in 10 days, payment net 30. The vendor accepts, and the PO now governs delivery, the goods receipt note, and the invoice.
The PO anchors three-way matching
The PO is one of the three documents in three-way matching — matched against the goods receipt and the invoice before payment. No clean three-way match, no payment.
Why purchase orders matter
- Commitment control — spend is committed only against an approved, numbered PO.
- Legal clarity — the accepted PO sets prices, quantities, and terms in writing, reducing disputes.
- Receiving and matching — receivers and finance use the PO number to verify deliveries and invoices.
- Spend visibility — open POs show committed-but-not-yet-paid spend, feeding accurate forecasts.
The PO is the commitment step of the procure-to-pay cycle, sitting between the approved requisition and the goods receipt. Need a ready-to-use layout? See our purchase order format template.
Frequently asked questions
Is a purchase order legally binding?
Yes, once the supplier accepts it. A purchase order is an offer from the buyer; acceptance by the supplier forms a binding contract on the stated items, prices, and terms.
What is the difference between a purchase order and an invoice?
A purchase order is issued by the buyer before delivery to order goods. An invoice is issued by the supplier after delivery to request payment. They are matched against each other during three-way matching.
Do small purchases need a purchase order?
Not always. Many organisations use low-value thresholds, petty cash, or procurement cards for small buys, and reserve formal POs for amounts above a set limit to balance control with speed.