What Is a Purchase Order?
A purchase order (PO) is a formal document issued by a buyer to a supplier that authorizes a purchase, specifying the items or services being bought, the agreed price, quantity, delivery terms, and payment terms. Once the supplier accepts it, the PO becomes a binding agreement between both parties.
What a Purchase Order Includes
- A unique PO number for tracking and reference.
- Vendor and buyer details.
- Itemized description, quantity, and unit price for what is being purchased.
- Agreed delivery date and shipping terms.
- Payment terms, such as net 30 or net 60.
PO vs. Non-PO Purchases
Not every purchase goes through a formal PO. Recurring costs like utilities, subscriptions, or small ad hoc purchases are often handled as non-PO invoices instead, since issuing a formal purchase order for every transaction would add friction without much benefit. The tradeoff is that non-PO invoices lack the built-in pricing and quantity check a PO provides, so they typically require manual approval instead.
Why Purchase Orders Matter for Accounts Payable
The purchase order is the reference point AP uses to validate an incoming invoice. If the invoice's price and quantity match the PO, and the goods were confirmed received, the invoice can be cleared for payment with confidence. Without a PO on file, AP has no independent way to confirm the invoice reflects what was actually agreed.
Frequently Asked Questions About Purchase Order
1. What is a purchase order?
A purchase order (PO) is a formal document a buyer sends to a supplier authorizing a purchase, specifying the items, quantity, price, and terms agreed to. Once accepted by the supplier, it becomes a binding commitment for both parties.
2. What information does a purchase order include?
A unique PO number, vendor and buyer details, an itemized list of what is being purchased with quantities and prices, delivery terms, and payment terms.
3. Do all business purchases require a purchase order?
No. Recurring or low-value purchases are often handled without a formal PO, known as non-PO purchases, though this means the invoice must be validated and approved manually instead of matched automatically.
4. How is a purchase order different from an invoice?
A purchase order is issued by the buyer before the purchase to authorize it. An invoice is issued by the supplier after delivering the goods or services, requesting payment. AP compares the two to confirm they agree.
5. What happens if an invoice does not match its purchase order?
The invoice is flagged as an exception, either for a pricing discrepancy, a quantity mismatch, or a missing receipt confirmation, and is routed for manual review before it can be approved for payment.
