What is a purchase order?
A purchase order is a document sent from buyer to seller, asking for the product or service they’d like to buy. It’s typically an itemised list, with quantities and costs (item price or hourly rate) documented. A purchase order is commonly known as a PO.
A purchase order, once accepted by the seller, usually forms part of a legally binding agreement. If there’s any dispute over what was bought or ordered, it’s in black and white for both parties to see.
A purchase order is also an important accounting document for both buyer and seller, because it helps keep track of what they’ve bought and sold. It’s extra helpful when lots of purchases are happening at once.
What information should you put on a purchase order?
What you’re buying (product or service)
How much of it you’re buying (in units or hours)
Price per unit/hour
If a product; brand names, SKUs or model numbers
The product or service delivery date
Delivery location
Billing address
Payment terms e.g. within 30 days, or ‘upon delivery’
What does ‘raise a purchase order’ mean?
Raising a purchase order is just a bit of jargon that describes the process of creating a purchase order and sending it to the seller.
Typically, the process of ‘raising a PO’ looks like this:
Buyer gets a quote or price list from the seller
Buyer creates a purchase order, detailing the products & services they want to buy
Buyer sends the purchase order to the seller
After this:
Seller accepts the purchase order
Seller delivers the products or services
Seller issues an invoice
Buyer pays the invoice, within the agreed payment period
Before raising a PO, some companies may ask the buyer to get budget approval from a senior manager or a finance department. There may be steps they have to take internally (especially if it’s a big company) to get their PO approved before they can send it to the seller.
Purchase order vs invoice
A purchase order and invoice are similar, as both will have an itemised list of goods or services. But a purchase order is sent from a buyer to a seller before the product or service is delivered, and an invoice is sent from the seller to the buyer afterwards.
This article is for information purposes only and does not constitute legal, tax or accounting advice. You should get professional advice if you need help to understand your legal rights or to manage your accounting or tax affairs.
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