Core concepts
Purchase order
A purchase order (PO) is a document a buyer sends to a seller to officially authorize and commit to a purchase, listing the items, quantities, and agreed prices.
What a purchase order is
A purchase order is created by the buyer, not the seller. It signals a formal commitment to buy specific goods or services at agreed quantities and prices, and it gives the seller the go-ahead to fulfill the order.
POs are common in larger organizations because they create an approval trail: the purchase is authorized before any money is spent, which helps control budgets and prevent unauthorized buying.
Purchase order vs. invoice
The purchase order comes first and flows from buyer to seller to request goods. The invoice comes after delivery and flows from seller to buyer to request payment. When they match (a process called "PO matching"), the buyer’s accounts-payable team can confidently approve payment.
Many invoices reference the related PO number so both sides can reconcile the order against what was actually billed.
Example: A marketing agency issues PO #5567 to a print vendor for 1,000 brochures at $0.80 each. The vendor prints them, then sends an invoice referencing PO #5567 for $800.
FAQs
Frequently asked questions
Who creates a purchase order?
The buyer creates and sends the purchase order to the seller to authorize a purchase. The seller later responds with an invoice.
Is a purchase order legally binding?
Once the seller accepts it, a purchase order generally becomes a legally binding contract for the goods or services at the stated terms.
Related terms
Invoice
An invoice is a document a seller sends to a buyer that itemizes goods or services provided and requests payment by a stated due date.
Proforma invoice
A proforma invoice is a preliminary, good-faith estimate of costs a seller sends before goods or services are delivered, so the buyer can review and commit before a final invoice is issued.
Invoice number
An invoice number is a unique identifier assigned to each invoice so it can be tracked, referenced, and reconciled in accounting records.
Put it into practice
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