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All You Ever Need to Know About Purchase Orders

Purchase orders help organizations regain control of its spending, streamline the process of acquiring goods and services, and create a proactive spend culture the contributes to a healthy bottom line. Here’s everything you need to know.

Using purchase orders can help an organization regain control of its spending, streamline the process of acquiring goods and services, and create a proactive spend culture that improves the bottom line.

An efficient purchase order (PO) system also allows team members (like finance teams) to keep tabs on pending and future purchases before any additional money is committed.

In this blog, we explain what purchase orders are, how they work, and how to create an efficient PO system that works perfectly for your needs.

Table of Contents

What is a purchase order?

It seems logical to start this guide off by answering a simple question: what is a purchase order? Here’s what you need to know:

Purchase orders (POs) are documents sent from a buyer to a supplier with a request for an order. Each PO will outline the specifics of a purchase request, including an order description, quantity of items, and the agreed-upon price and payment terms. They also identify the purchase order (PO) number.

When a seller – like a supplier or a vendor – accepts a purchase order, a legally-binding contract is formed between the two parties. 

Although purchase orders add a few extra steps to the purchasing process, they help to ensure a smooth transaction between the buyer and the seller. They also help reduce the risk of fulfilling an incomplete or incorrect order. In short, these documents are an opportunity for the buyer to clearly and explicitly communicate their request to the seller.

On top of this, if the buyer refuses payment upon delivery of a good or service, the seller is protected because the purchase order acts as a binding contract between both parties.

Lastly, some commercial lenders will use purchase orders as a reference to provide financial assistance to an organization.

How do purchase orders work?

In order to streamline the purchase of goods and services that an organization requires to operate successfully, a purchase order must follow a strict step-by-step procedure known as the purchase order process.

In this section, we’ll explain who and what is involved in this process within an organization.

Understanding the steps in the purchase order process

The purchase order process is the journey a PO takes from creation through to closure and everything in between. Depending on the nature of a company (size, industry, human resources, organizational structure, the goods and services it is acquiring, etc), the purchase order process can also be modified to include additional necessary steps like quality checks, budget approval, contractual approval, and more.

Here are the steps in the purchase order process: 

  1. Create a PO
  2. Approve a PO
  3. Send a PO to the vendor
  4. PO Received (Binding Contract)
  5. Receipt of Goods or Services
  6. Invoicing
  7. 3-Way Matching
  8. Authorize and Arrange Payment
  9. PO Closure

Let’s break these steps down in detail.

1. PO creation

When a company (i.e. the buyer) decides to buy a product or service, it creates a purchase order that details what is being requested from the seller, along with pricing and payment terms.

2. PO approval

Before a PO can be sent, it needs to be approved. A company’s approval process will dictate who, within the company, is required to approve a PO before it is sent to the supplier.Modern companies tend to facilitate this step by requiring (and approving) purchase requisition first. This process eliminates the need for PO approval, and streamlines the process for the purchasing team.

3. PO sent to a vendor

Once approved, the PO is sent to the seller. For software companies that buy online, this step might seem redundant. However, POs also serves as an internal document that streamlines reconciliation for the accounting team once the invoice is received. So while it isn’t mandatory to send the PO to the vendor, it’s still good practice to keep it for internal purposes.

4. PO received [binding contract]

The vendor/seller receives the order. Once the vendor tells the company that it can fill the order, the purchase order becomes a binding contract. E-procurement tools like Procurify offer to send POs through an online procurement system, which makes it easier to track that emails with POs were both sent by the company and received by the vendor.

5. Receipt of goods or services

The seller ships the order, attaching the PO number to the packing list. This helps the buyer know which order has arrived.

6. Invoicing

The seller also invoices for the order, making sure to include the PO number to the invoice.

7. Three-way matching

The company uses 3-way matching to confirm that the PO number and order details (quantities and prices of the goods and services ordered) match up on the Purchase Order, Invoice, and Packing Slip.

8. Authorize and arrange payment

Provided everything checks out and the company is happy with the order, the company approves the invoice and arranges payment to the seller (as per the agreed-upon payment terms).

9. Purchase order closure

When the above steps are completed, mark the PO as closed.

Who issues a purchase order?

The buyer is responsible for creating and issuing a purchase order. In larger companies, a procurement or purchasing department will typically issue the purchase order. In smaller companies, the business owner, operations manager, or financial manager may issue the purchase order.

It’s also important to note that the role of creating and issuing a purchase order can be designated to a central purchaser for a specific team. For example, in a software company, an office manager can create purchase orders.

Ultimately, who issues the purchase order comes down to how a company decides to set up its purchasing process.

Who approves a PO?

One or several people can approve purchase orders depending on the purchasing process that’s in place. In larger companies that have defined purchasing processes, purchase order approvals are typically structured around locations and departments, with specific dollar thresholds attached.

For example, if a digital marketing manager in a software company is requesting a new ad budget, the purchase order approval routing could include a marketing director and a CFO (or another role in charge of the company budget).

In smaller companies, CFO or CEO could be the final approval for any kind of spend, which can result in approval bottlenecks.

What does a purchase order contain?

Generally speaking, here’s what a purchase order contains:

  • Product(s) or service(s) being purchased
  • Quantity purchased
  • Specific brand names, SKUs, or model numbers
  • Price per unit
  • Delivery date
  • Delivery location
  • Company billing address
  • Agreed payment terms (e.g. on delivery, in 30 days, etc.)

These items can be a strict requirement or an option, depending on an organization’s procurement and purchasing workflows. In addition, purchase orders can be customized to suit the needs of a business, so this list is not exhaustive.

With e-procurement software like Procurify, you can add account codes in the requisition phase. Adding this information will streamline the reconciliation process and make it easier to transfer information to your accounting system.

What do purchase orders look like?

Companies typically have a standardized PO document with stock information to ensure consistency.

Here is a purchase order example that shows you what a purchase order looks like: 


Purchase order example
Procurify’s purchase order example


Purchase order vs invoice: what’s the difference?

If you’re new to using POs, you might be wondering: how are they different from an invoice? Well, to start, different team members create these documents.

Buyers create the PO and send them to vendors. In turn, this prompts the vendor to accept the PO and send an invoice back to the buyer.

It’s common for the PO and the invoice to contain similar details. The invoice generally references the PO number, along with an invoice number, to confirm that both documents contain the same information and correspond to each other. 

Here’s a handy table that explains the key differences between purchase orders and invoices:

Purchase Order Invoice
Who creates it? Buyers are responsible for creating POs. Vendors are responsible for creating invoices.
When to send? Must approve and send to the vendor prior to purchase, or kept for internal record. Create and send an invoice once payment has been received.
What information does it contain? – Details of what’s being purchased (products/services, and the requested quantities)

– SKUs, model numbers, and brand names of each item
– Pricing

– Delivery date

– Delivery location

– Billing address

– Payment terms

– PO number

– Invoice number

– Itemized breakdown of the order with the cost


An example

Here’s an example to help you understand how to use a PO and an invoice in the purchasing process:

David is an IT Manager at a software company. He needs to purchase some laptops for new hires. He creates a PO that outlines everything that’s needed, including the quantity and any specific requirements (like the number of laptops, laptop models, etc).

The company responsible for selling the laptops receives the PO. After they confirm they can supply the laptops with the required specifications, they fulfill the order. They ship the laptops with a delivery date and attach an invoice. 

When David receives the laptops, he has to verify the delivery.

Sarah, the company’s accounting manager, will then perform a 3-way match once the invoice is received. Provided everything matches up, Sarah can submit the invoice for approval and then pays the seller.

Once complete, it’s important to mark the PO as closed and the invoice as paid.

Is a purchase order a contract?

Yes, when accepted by a vendor, a purchase order is a legally-binding contract.

Vendors ‘accept’ a purchase order by telling the buyer that they can fulfill the order. Vendors can ‘reject’ a purchase order by telling the buyer that they cannot complete the order. 

Alternatively, if Request for Quotation (RFQ) is part of the process, the vendor can simply not accept the RFQ to indicate that they cannot fulfill the order.

The benefits of using electronic POs

If you’re using paper-based POs, you’re creating more work for yourself than you need to. You also open yourself up to a range of potential errors, all of which are avoided with electronic POs.

E-procurement platforms like Procurify can streamline company purchasing and provide greater transparency into every stage of the purchasing process.

Here are the benefits of switching to an electronic purchase order system and e-procurement software:

1. Centralized purchase orders

In cloud-first procurement environments, the management of organizational POs is centralized to one online platform. Teams and managers get full visibility into what stages the POs are at, in real-time. Because e-procurement software lives in the cloud, POs are stored securely, yet remain accessible from any location at all times.

2. A faster purchase order approval process

Approving team members are notified immediately when a purchase request is submitted in the system. Paper-based approval workflows often lead to inefficiencies that result in bottlenecks. 

3. Better visibility into budgets

Purchasers and procurement managers know what’s coming down the spend pipeline. Pending but not-yet-approved purchases are known and taken into account before the approval of additional spending.

4. You can avoid unnecessary expenditure and fraud

Because they offer better approval systems and automated three-way matching, e-procurement platforms can reduce the chances of your company paying for things that haven’t been received. They also make it easier for teams to spot fraudulent invoices prior to payment.

5. Efficient record-keeping, and less room for an administrative error

Good record-keeping is essential for purchasing and procurement. It’s easy to lose, damage, or accidentally destroy paper-based records. It’s often hard to spot duplicate requests, purchases, invoices, or missing transactions — all of which can cost your company time and money. Using paper also requires an efficient and regularly updated filing system which consumes space and man-hours in order to work effectively.

Digital records eliminate all of these problems. When managed in the cloud, more than one person on the finance team can access every PO. In short, these vital documents don’t live on one person’s desk, and they won’t go missing. This isn’t only better for end-to-end purchasing visibility, it’s great for purchasing efficiency, too.

6. Sustainability 

Less paperwork means a better carbon footprint for your company.

The Pros and cons of using POs

POs are important because they can help companies:

  • Avoid duplicate orders
  • Avoid surprise invoices
  • Track incoming orders
  • Catch unexpected pricing increases
  • Improve financial and inventory accuracy
  • Comply with auditing requirements
  • Smarter budget: procurement teams can only purchase with available funds, which require approval
  • Improve (and even speed up) delivery times, as POs help to schedule delivery for whenever the buyer needs it
  • Ensure clear communication with vendors
  • Act as legally binding documentation

However, it’s important to assess your company’s specific needs before introducing a purchase order system as there’s an administrative downside to using POs

The drawbacks of using POs include: 

  • POs create additional paperwork, which can be annoying for smaller purchases and time-consuming for smaller teams
  • Although they don’t act as a legal contract between the vendor and the supplier, credit cards can replace POs to help with record keeping and documenting purchases. (Keep in mind, if a company does use credit cards for purchasing, POs can facilitate the credit card reconciliation process for the accounting team.)

Should you use purchase orders at your organization?

Using purchase order forms can help a company shift its spend culture from a reactive state to a proactive state. So should you use purchase orders in your business or not?

To answer this question and create an approach to purchasing that works for your company, you’ll need to take a step back and observe how your organization is currently handling purchasing.

POs give you insight into your company spending. They help team members make purchases efficiently and streamline the purchasing process. They also help accounting teams reconcile spending.

Here’s what you should assess before you integrate a purchase order system in your company.

Purchase requisitions: helpful or not?

Assuming your organization doesn’t currently use purchase orders, it is also likely that you’re not managing the requests your team members make when they want to purchase something. Most organizations simply allow their team members to email a manager their request and then have that person make the necessary purchases.

An informal purchasing approval process probably isn’t an issue if your company is small and team spending isn’t exceeding your budget. But as your company grows and more teams start purchasing goods and services, the need to have tighter control on company spending will arise. This is where purchase requisitions will come in handy.

Requisitions are a purchase order request your team members make for materials or items they need to do their job. The approval or denial of a PO happens when a team member sends the request to their manager, or directly to the procurement team.

By formalizing the process of requesting to purchase something, you can eliminate excessive and unnecessary expenditures and get your company spending under control.

Keep in mind, introducing purchase requisitions is that it adds yet another step in the purchasing process. So consider if the benefits outweigh this drawback before moving forward.


If getting your budgets under control is a priority for your company, you should know that adding PO requests creates two important benefits—the ability to manage a budget for team spending and the opportunity to take advantage of volume discounts on large orders.

As team members begin to draft purchase requisitions, you’ll be able to create an average monthly spend and track what your teams are purchasing. This means you can start analyzing how they use supplies and identify opportunities for savings. An approver will be the person managing the budget. If teams go over budget, the approver may not approve all the purchase requisitions that are not immediately necessary.

Volume discounts

Is there a chance that bulk purchasing could get you better discounts from vendors? If so, POs and purchase requisitions are likely going to be helpful. 

Once your teams begin submitting purchase requisitions, the approver can also easily identify purchasing patterns. The approver can then submit bulk orders and request discounts to vendors. If the requests is digital, it can significantly reduce processing time because teams can add frequently requested items to a catalog from the best supplier at the best price.

Purchase orders

Is purchasing getting out of control? Do you have clear, transparent insight into who’s buying what, and which vendors you should be buying from? Can you access real-time financials that tell you how much you (and your teams) can spend on purchases at any given moment in time?

Your answers to these questions will provide clues on whether you need a purchase order system in your business.

If the answer is yes, then we’ve got good news: creating a purchase order process is likely as simple as contacting suppliers and informing them that from now on you’ll be submitting a PO before sending payment for goods. The supplier will likely be happy about this because it will significantly help both parties.

The purchaser will complete a PO form and send it to the vendor when an approved request is ready for purchasing. If there are any concerns or issues with the purchase, a vendor will communicate these clearly. After they receive payment, they’ll ship the product and send an invoice.

Introducing a PO process is even easier for you, your departments, and your vendors when you use e-procurement software.


Many organizations avoid using purchase orders because they don’t want to deal with extra paperwork or slow their existing processes down. But unless your business is small and makes just a few purchases from a handful of vendors each month, you’re probably not leveraging the many benefits that a purchase order system can bring to your company and its bottom line.

Purchase orders offer vendors clear legal guidelines and instructions for purchasing. For an organization, they offer an audit trail. Finances leaders can refer to this when things go wrong.

What do you think?

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97 responses to “All You Ever Need to Know About Purchase Orders

  1. Thanks for the article on All You Ever Need to Know About Purchase Orders.Looking for more articles like this.

  2. Hey, excellent blog. I have perused numerous web journals on “buy orders “. Be that as it may, your blog is extremely compelling. Would you be able to kindly disclose to me that PO has Terms and Conditions attached to it?

  3. Hi, I would like to ask if you request a quotation by a certain item number/code and the supplier send you a same item number/code but not same as the item description that you want. It still okay? Since the item number/code are the same but not same item description?

    1. If the item description is different but the number/code match you will still want to check that you received the right items. Whenever you see discrepancies you need to use your judgment to see if this something you need to look into a bit further. You’re spending the time to match orders to avoid making costly mistakes.
      I hope this helps Diana!

  4. I come from a strong Pharma background where part of my previous roles included Purchase Order creation and ensuring my vendor base got paid in a timely fashion. I have since moved on to become a third-party supplier for most of my former Pharma clients and it is shocking to see how small vendors struggle to get paid – even when they play by the rules. Does anybody have any advice on how to pressure a Client for opening a Purchase Order on time and to answer uncomfortable requests regarding unpaid invoices?

    1. Accounts Receivable is a very common issue that involves some tact and relationship management.
      On one hand, you want to get paid on time and on the other you want to make sure the client is happy. You’ll want to set expectations clearly and when your client oversteps the agreed-upon boundaries, to have a respectful but clarifying conversation about how it affects you and your organization. Your client still needs to buy things from you and often the “late invoices” aren’t malicious acts just oversights that need to be clarified.
      I’d recommend overcoming your fear, making the call and just taking a firm but fair approach to following up with late invoices.
      Ask non-interogative questions, to see if you can set up a plan that makes it easier for the client to pay you what is due.

  5. Can one company issue a PO for product that is to be billed to another company, but they don’t list that company on the PO at all? Doesn’t the company who is to be billed need to issue the purchase order?

    1. Hey Krista, normally the buyer issues a Purchase Order to the supplier. A PO is meant to act as an initiation to buy a product or service and is sent to the seller to communicate this intent.

      The supplier accepts or rejects the terms of the PO. If accepted, the supplier fulfills the items on the purchase order and can charge the buyer based on the payment terms.

      To answer your question: The company that is “billed” usually issues a PO to set explicit terms. There is no requirement to issue a PO, but some suppliers will refuse to start work without one.

      In regards to “they don’t list that company on the PO at all?”
      The person issuing the PO usually wants to be explicit about the details to avoid confusion. This includes the business they are purchasing from, the items to be procured, and the payment terms.

      Hope this helps Krista!

  6. I have a supplier that wants to know this: “Do you require a purchase order # before we accept an order?” So, I am guessing they want to produce a PO tracking number we will use on our PO’s? Thoughts?

  7. HI, i am wondering how long you must keep PO records? i work at a Hospital. and we are closing our doors permanently. i need to know how many years of Purchase orders I need to file for safe keeping by law in the state of New Jersey.

  8. Purchase order is one of the best evidence or confirmation to the seller that would be very s about from the buyer side that buyer is serious about to purchase the product and very genuine and can pay if we provide the credit to that particular buyer.

  9. HI, i am wondering how long you must keep PO records? i work at a Hospital. and we are closing our doors permanently. i need to know how many years of Purchase orders I need to file for safe keeping by law in the state of California. .

    1. Yes, Terms and Conditions are important as the Purchase Order is a binding contract between you and the vendor. If there is anything that happens to the transaction, the terms and conditions can help decide what the next steps are. Hope this helps!

  10. Hi.
    Could you please tell me what Raising the Purchase orders mean??
    And what the procedure is in raising the purchase order?

    1. It’s the process of coming up and formulating an order request after you have received a requisition from the user departments

  11. I am considering a start up company and nothing about PO’s or how to process them. My primary question is, How is a PO, processed, that is. Deposited into a Bank account ?

  12. Hi I have an interview and the question they asked was “What should be one of the first steps an accounts payable assistant should take when receiving a purchase order?
    A. File it
    B. Date stamp it
    C. Prepare it for Payment
    D. Send it to another department

    Can anyone help as to what the answer should be

    1. Hi Nisha,

      Thanks for reading our blog and for your question – there may be more than one correct answer depending on the context and situation, and we believe you will be evaluated on how you justify your answer.

      This is quite an interesting question since from our experience, an AP assistant is not usually the first one to receive a P.O. If you are in AP and you do receive the P.O, I would send it to another department as an AP’s primary job is to pay invoices and not process orders.

      If there is no further context provided aside from the question and you have to be the one receiving, then the correct answer should be B – date stamp it. Usually, the best practice is that the P.O in itself should be date stamped beforehand. If not, that would be the first step to receiving.

      Date stamping is crucial because it is a record of when anything is received. It could be troublesome for the receiving company if they do not date stamp because they can’t determine when they got it and if that happens, it causes delay and expedited work.

      For Example:

      I received a P.O and I date stamp it for Jan 23 2018 and it isn’t due until Feb 14, so I put it aside for later processing if I have time.
      But closer to the date, I haven’t submitted it for processing and when the Manager or whoever receives it, they’ll question why it hasn’t been processed considering it was received on Jan 23. It would take more work to process it as fast as possible.
      External vendors may also think: “We sent it and you received it on this date, why is it taking so long?”

      Feel free to reach out to me at dani.hao[@] if you have any further questions! Good luck with your interview.

    2. An accounts payable team should not receive a purchase order. It will usually be sent to the fulfilment/sales team (whatever that may be) within the organisation.

      That said, check it for a date stamp. If it doesn’t have one then date stamp it. That is always sound business practice. Dani’s example is a likely one but the bigger issue is receiving a Purchase Order much later than it was generated by the other company. If they then make a complaint to say the goods have not been dispatched promptly and the PO was generated months ago, you can quickly use the date stamp as evidence that it did not arrive.

  13. I am looking for a software like this but as the vendor not someone placing the order.
    I am looking for a program that will require clients to place orders online so it doesn’t have to manually go through the account manager, accounts receivable clerk, then the department that will fulfill and ship the order.

    I want to minimize clients emailing orders over phone or email in random formats.

    Will this program work for that?

    Note: I am the vendor.

  14. A buyer gave us a purchase order for 10,000 tons of material. We made the material, and they say they are now only getting 500 tons. Are they legally bound to pay for the entire 10,000 tons?

    1. A mutually accepted purchase order can be treated as a legal document. However in your case, the terms stated on the P.O. are important to consider as normally you will have details about the delivery date and terms of payment. Who takes the liability after manufacturing and at what point can be a tricky subject between buyer and seller.

      I know it probably doesn’t help with the situation you are in right now but a good purchase order will detail expectations on both sides in case of a mishap.

      1. Rocky my comments are meant to explain what purchase orders are generally used for and should not be taken as legal opinion. You should seek legal counsel if you need to take the situation further.

      2. We received a purchase order for 2 units of machine. As per the conditions, the Buyer will pay 50% in advance and the remaining 50% will be paid upon the completion of the second unit. However, we have completed the production of the 2 units but when the first unit was delivered, they send us a notice of cancellation of the second unit. Can we hold them liable or force them to pay the complete amount of the purchase order?

      3. Apologies for the late response, Rene.

        I can only answer from experience; in any event, I would encourage you to take your query to a lawyer as they would be ideally suited to answer your question.

        From what I understand, a purchase order is a legally binding document. Once accepted by the vendor, it stands. Unless otherwise stated on the PO (Many POs come with a list of terms and conditions that establish the protocol that is to be followed in situations such as the one you find yourself in), both buyer and vendor should ideally agree on changes in the order before either party decides to make a change. In your case, it seems to me like the buyer decided to change the order merely by notifying you, as opposed to coming to an agreement with you about the said change.

        Hope this helps.

  15. The comments on this article are great! Between the simple, clear explanation the article gives and the rich, 1 in a 100 situations detailed in these comments this is an awesome manual on POs.

  16. I have a few issues that I need clarification on best practice.

    First issue; What if the $ amount of the service needed is unknown and the vendor can’t provide a quote before the work is done? For example, we have a few vendors we use to fix equipment and provide custom metal fabricating, but the necessary repairs/work is unknown and could vary between $200 and $5,000 depending on what is broke and how much labor it takes to fix/fabricate. Its only after the work is completed that we actually know the cost, at which time we have already incurred the liability to pay for anything they fixed/fabricated and at whatever price they charge. These vendors are apparently the only ones in the area too.

    Second issue; operations also regularly doesn’t enter requisitions to purchasing for them to order because they do not trust that they (purchasing) can convey the needed info or answer any questions to order effectively. I have personally seen some of their requisitions and they often do not contain the necessary information to order effectively, but the time it takes purchasing to clarify has been used as an excuse to not order through purchasing. Operations always replies that they can’t have the plant shut down due to delays in ordering.

    Third issue; we currently do not have enough staff for there to be a dedicated receiving individual, so currently everyone is receiving in the system their own orders. I would like to segregate this to a separate individual independent of the requesting and the ordering responsibility, however trying to implement something without a receiving person has proven difficult.

    I am trying to implement policies to ensure proactive POs and segregation of duties, but these issues are being used as reasons for not following these policies.

    1. Your first issue is an issue of cost control and should be looked into quickly with the aim of developing a strategy. It is not reasonable to give a supplier carte blanche on costs like this. You should seek to move them away from a time and materials agreement to a collared and capped rate.

      That being said, if you can’t do that, they will need to raise the PO for $5,000 with the explicit instructions to the supplier that this is not what you are paying, but what you will pay up to once the invoice is received.

      Your second and third issues need corporate sponsorship. It sounds like you need to build a case as to why you should be using purchase orders and then get the required resources and authority to prevent people going off policy.

    1. Hi there! We don’t currently have an office in Melbourne but we can definitely have someone on our team reach out to you to talk. What number can we reach you on? Pls send it to me at, and we’ll contact you shortly.

      Alternatively, you can call us on +1-888-463-5254 (Worldwide Toll Free)

      Hope this helps.

  17. I am a buyer for my company. We sometimes receive requests to create a purchase order after an item has shipped. Do you know if there is a standard business practice related to this?

  18. Are the rules for purchase orders and non purchase orders the same? If someone needed to order something as a non purchase order (NPO) would they follow the same procurement rules such as getting it approved if over $5,000 before submitting an order? Are there repercussions for such?

    1. Thanks for reaching out, Donna. From what I understand, Non Purchase Orders are used when someone in your company needs to order something urgently. Because of the urgency behind it, NPOs — unlike standard POs — may not be placed for approval before the the head of the department, the CFO (or any of the parties that are designated as approvers).

      Just as an FYI — Another term for Non Purchase Orders is Self Purchase Orders, where the employee, who needs to procure a purchase, writes the Purchase Order himself instead of relying on the traditional route of purchasing (wherein the proposal to purchase is approved by a chain of approvers and subsequently goes to the Purchasing Manager who then drafts a Purchase Order). You may find this post helpful.

      Coming back to your question, I think it’s prudent to note that NPOs typically come with limits. In your case, the limit is $5,000. What this effectively means is that you may be allowed to make a purchase using an NPO as long as the cost of the product you are trying to procure is under $5,000. In other words, you may be allowed to purchase the product without seeking any approvals first. But before taking such an action, I would first make it a point to check with whoever is in-charge — either the CFO, Purchasing Manager, Procurement Director, Controller etc.

      I would also strong recommend against using NPOs. That approvals take a long time to process is an erroneous belief, unless you are using spreadsheets, email or a paper-driven process that is inherently slow. With modern spend management solutions like Procurify, you can actually get anything approved in a matter of seconds.

  19. Hi,
    I have a tricky situation. I recently quoted a company for a 2 services, which they accepted however followed through with a PO for 3 services. The PO included details of where it was to be completed and what was to be completed, however it did not state any pricing information. So as quoted we carried out the 2 services as we originally agreed, however they are now stating that as the 3rd part is not complete they are withholding payment. So I have 2 scenarios 1) Do I demand payment as we originally only quoted for the 2 services and that was our original agreement (even though the PO differs) or 2) Do we complete the 3rd service and raise an additional invoice (completing the PO in full but as there is no price on their PO there is no clear pricing structure only on the previous 2 services from our quotation)?

    1. Thanks for reaching out, Amy. Before I venture my opinion, could you clarify something?

      Are you saying that the second PO included the prices of the first two services, and mentioned the third service without specifying how much it would cost?

  20. If the buyer placed order on the Seller and seller send the Sales Acknowledgment to the Buyer. After the three months material is finished and at the time of Dispatch, if any confidential document is required by the seller and in this case if buyer is not in position to provide the same. if Seller cancel the order from his side, than is buyer is liable to pay the charges incurred in manufacturing the material. AT the time of placing the order, seller has not demand this Confidential document.

  21. Hello thanks for writing! Currently working for a small start-up an we are new to PO’s we have a large PO for 200k Units, it has 4 different PO’s for this order each getting delivered at a different time, my question is can they “cancel” there existing PO before delivery?

    1. Hey Tyler,

      Thanks for reaching out. From what I understand, a Purchase Order becomes a binding contract the moment it is accepted by the vendor — to this end, it is best to furnish the buyer with a proof of acknowledgement that the PO has been accepted.

      In an ideal world, the only grounds to cancel a Purchase Order should be either non-delivery, defective or incorrect products, or any other lapses on the part of the vendor/supplier. However, as it happens, many companies do end up cancelling POs because they suddenly realize that they ordered the wrong product, or do not need it, or can’t afford it, or, worse still, because they found a better deal. These things happen. And there’s little the vendor can do, particularly when he has already committed to the deal, apart from getting into an argument with the buyer and threatening him with legal action.

      To avoid such quandaries, it’s essential to account for such situations in the Terms and Conditions of the PO itself. The vendor must insist that the Purchase Order contain details of what would be the course of action should undesirable situations, such as the ones described above, arise. This would help both the vendor and buyer have a clearer understanding of the agreement they are getting into.

      You may find this post insightful.

      I hope the feedback helps.

  22. Hi, in need of some help please. I am a small limited company hiring equipment to offices. presents i only receive orders via text messages from managers on site but not the owners them selves. after the use of equipment i invoice them via email. My question is in my situation do i need a purchase order from them or any other kind of provable communiction in case some one decides not to pay. I only hire for a day or two but i dont sell anything.

    1. Thanks for reaching out, Zangaz.

      Ideally, the businesses that you are dealing with should be routing all their purchases through the purchasing manager; in more process-driven organizations, managers place a request (either for a good or a service that their team needs) with the purchasing manager, who then accepts the request and writes out a purchase order that is then sent to the vendor. And yes, purchase orders, as your rightly said, are probably the best proof of purchase.

      But your situation may be a bit more complex; if your client businesses prefer to use on-site managers to place orders with you, it means they either lack the resources to hire a purchasing manager to do the job, or simply prefer not to. The latter case is not uncommon; in many companies, particularly those in the construction industry, the site or field manager needs equipment or services immediately — he doesn’t have the patience or the time to either place requests with the purchasing manager or write a purchase order himself. However, most companies of this kind do not realize that with the right of kind of purchasing software (like Procurify, for instance), writing a purchase order is as simple as sending a text message or updating your Facebook status.

      Given the constraints in your situation, you may not want to insist on the use of purchase orders. Maybe openly communication your concerns about the important need to have proof of purchase would help your clients understand the value of purchase orders.

  23. Is there an industry standard regarding what items need to go on a purchase order? For instance I understand high dollar items and inventory are needed for a PO, but I don’t cut a PO for utilities. I’m also finding our production department wants me to place a PO for tools – sometimes for only $10.00. I’m trying to create parameters regarding what Purchasing cut’s PO’s for and what they shouldn’t. Any thoughts?

    1. Thanks for reaching out, Erik.

      I think it’s great that your company is taking such a proactive approach with their purchasing — hence the insistence on using POs for every purchase. At the same time, I do understand that it can become highly cumbersome to write out a PO for every little thing — especially utilities and tools which cost very little money.

      My suggestion would be to break down your spend into categories — utilities could be one category, tools another, raw material yet another — you get the drift. After you’ve broken down your spend, you would know how much you spent, for example, on utilities in the last fiscal year. You can use this data to have a fair idea of how much you would end up spending this year.

      Once you’ve done this, you will no longer be required to create a PO for every tool or utility that you need to order. Instead, you can order all your tools using one consolidated purchase order at one go; I wouldn’t recommend doing this for every spend category — just the ones where prices are low and the goods/services are related. Besides saving your the trouble of writing a purchase order every time, this system would put you in a more favorable position to negotiate discounts with your vendor since you are now placing a larger order.

      This can be hard to do manually. But spend management solutions like Procurify can automatically categorize your spending, give you a bird’s eye view of your spend and hand you back the reins necessary to take control of your company’s expenditure.

  24. I was a buyer at a company I am no longer employed at. The company is still using my name on the purchase orders as the buyer. Is this legal or a normal practice. I know this because my new company received a new order with me as the buyer. They questioned me.

    1. Hey Kim,

      This is really strange practice. When someone leaves a company, the organization typically revokes your email and other accounts you may have.

      They should remove you from the purchase orders as you are no longer the person representing the company’s best interests. From a communication standpoint alone, it seems this would only serve to cause more frustration and confusion between all parties.

      Hope you get this resolved,

  25. hi
    i am working at a growing communications company and often need items from online suppliers urgently as in now!!! ,what is the fastest / best way to get the items and affect payment and still have an audit trail like a p/o

    1. Hey Marc,

      Great to hear you’re trying to solve this problem early on.

      The best way to match up your orders to what you’re receiving while maintaining information for when you need to make a payment is through three way matching. It sounds like you are already doing three way matching (matching invoice numbers to purchase order numbers to shipping/receiving documents).

      There are a number of ways you can manage your internal purchasing process:

      1) Manual pen and paper filing system
      2) Ad hoc email/spreadsheet
      3) Software

      There’s always a tradeoff between cheap, fast, easy. The “fastest/best way” is to centralize your records in a dependable and easy to pull up system. This way you can easily keep everything organized, make sense of your data, and catch errors as they occur.

      If you’re just starting out you might want to try creating a spreadsheet to manage your purchasing. If you need something more robust or that can scale to fit your organization as it grows, I would recommend looking for a software solution.

      Hope this helps,

  26. Hi,

    I run a consultancy firm and am about to do some work overseas. The company I am supplying to is asking if they should raise the PO in their currency or mine but I’m not sure of the answer. My quotes for the work have all been in their currency.


    1. Hi Emily,

      Even though your quote was in their currency, you will have to ask yourself “Which currency do I want to be paid in?”.

      If the answer is your currency, then the purchase order should be in your currency.


      On their end, purchasing best practices call for the currency on the purchase orders to match the currency on the invoice.

      This is typically referred to as three way match. Here’s some more information about what it is and why it’s important.

    2. Hey Emily,

      Nick makes some great points regarding your situation.

      The purchase order is meant to act as a communication tool between the buyer and supplier.
      Another benefit of using purchase orders is it helps to clear up confusion and potential misunderstandings before companies commit to spending money. In this case, you’ll want to clarify with the supplier which currency you will use to determine price. (This can be favorable if you pick a currency that falls).

      When you issue a Purchase Order you are representing the interests of the buyer. The seller still has the right to accept or reject the purchase order if they deem the terms to be unacceptable (or simply want clarification). You can try to make purchase orders more favorable (currency, shipping terms, insurance terms, etc.) to the buyer but it just depends on the situation.

  27. Please i need your advice. I own a small company as a supplier. The buyer sent me purchase order with conditions for my company to supply the goods within 5 to 8 weeks and invoice to receive payment with 45 days after the invoice. My company is not the manufacturer of the product. My question is it possible for the manufacturer to accept the PO and supply the goods to be paid after the I receive payment.

    1. The short answer is it depends.

      Theoretically I don’t see why a manufacturer would not be able to do this. It just depends on your agreement with the manufacturer. A lot of manufacturers will want a certain percentage up front to cover their risk (likely the minimum would be their cost) but you can negotiate for different terms if you develop a relationship with them.

      Relationships really matter when it comes to procurement.

  28. My boss Irwin Prescott ask me to research the new policy for purchase orders for sub-consultants, both new and old. He has three very large contract with multiple subs (the client is Florida Department of Transportation). The projects have been going on for years and all the necessary contracts are in place. Is there a change of policy that is coming out first of the year. If I need P.O.s is there a date where that it is necessary and all prior contracts are grandfathered in?

    1. I think we need to clarify the situation a little bit further to understand what you’re asking.

      There might be a change of policy but I don’t have enough context to be able to weigh in on that. If there are POs pending then the terms would have been stated in the purchase order if contracts were grandfathered in.

      Ultimately you should treat purchase orders as an agreement between two parties: buyer and seller. If one party is not clear about the details of an order, you are likely to have a dispute.

      The value of procurement officer or purchaser is not just cost savings but clearing up and effectively communicating to vendors what is desired.

  29. Hello, could you please advise me regarding our situation. We are a small company and we sent a purchase order to a seller who was to provide us with a certificate. During few month, for various reasons (we could not provide the correct documents), the certificate was not provided. Our seller insist on being paid, based on a fact that he has spent few months negotiating and consulting us. Are we obliged to pay in any event? Thank you.

    1. If the seller has a copy of a signed PO it technically can be used a binding contract. If your purchase order indicated that the certificate was part of the suppliers obligation to receive payment you could make the case the supplier did not meet their end of the bargain.

      The reason you want to keep your purchase orders organized with a standardized process is to avoid situations like this. There are times when what you receive or what you are invoiced are not aligned. You can point out the original PO to correct the situation.

    1. This really depends on your organizations unique process. If you’re using a paper based purchase order system it would be a good idea to leave a copy with the purchaser, give one to the receiving department so they can match it against the shipping document, and one to the AP department so that they can match it against the invoice.

      Having an electronic system would greatly improve the organization and storage of supporting documents. Everyone could then access the files online and it would allow you to three way match much more efficiently.

      Plus you could reduce the time everyone needs to spend creating paperwork, filing it, and then trying to dig it up during audits. Your filing cabinets will thank you.

  30. Hello, could you please let me know which department at the company should request and collect the Purchase Orders? we have an international department, which is mostly interested in sales forecast and provide the updated 3 mnth forecast figures to the common server, opening for the all relevant depts. Based on the provided sales forecast which department is responsible for PO and should ask the customer or remind them to send PO for the upcoming month and collect these POs? many thanks.

    1. Thanks for reaching out, Lale. The department that is directly dealing with your customers should ideally be held accountable for both receiving and storing Purchase Orders from your buyers. To ensure a clear audit trail, this department should also insist that the customer issue a Purchase Order for and, more importantly, prior to every transaction with your company.

      It might be, understandably, difficult for your customers (or buyers) to issue a PO for every purchase they want to make and this is because often times, their buying needs may be routine, repetitive and urgent. With an agile spend management solution like Procurify, your vendor can consolidate a large number of such needs into a single Purchase Order in seconds.

      In my experience, vendors and suppliers can only do so much to ensure that their clients follow proper purchasing procedures — this is one of the reasons why we, at Procurify, are trying to transform the Spend Culture of companies so that they are able to purchase better, smarter and more easily.

  31. A Purchase order was raised once but sent to a supplier twice, with the exact same details, in error.

    The supplier then delivered the goods twice and have said that we cannot return the items as they are specifically made. They have therefore invoiced us twice. I have paid both sets of invoices as the account was put on stop due to non payment.

    I need to know where we stand legally as to whether we can claim the money back as surely that is the point of a purchase order?

    1. Thanks for reaching out, Tracy. And sorry to hear about your situation. Do not consider this any kind of legal advice because I’m not qualified to offer it. I will say that typically every Purchase Order should have a unique identifier (i.e. the Purchase Order Number) printed on it. Ideally, the invoice, issued by the seller, should reference the PO number as well. If your Purchase Order had a unique PO Number on it, it would have been easier for the seller to realize that the order may have been erroneously duplicated, at the time of generating an invoice for it.

      Hope this helps.

  32. Hello Dylan,

    The “Delivery Date” on your purchase order should reflect the date that you actually require the goods to be on your job site/in your warehouse.

    When a purchase order is generated automatically for replenishment, the factors that are taken into consideration are the suppliers standard lead time for the item, as well as number of days until current inventory is exhausted or the item is required to fulfill a work order.

    In most cases, a supplier will look at all of the items on a purchase order and attempt to fulfill the order complete. In some cases, this means holding up items on hand until other items are available.

    Depending on the relationship that you have with your supplier, they may call you and ask if you want to hold the order and ship complete, or if there are items on the order that you require right away they can ship partial.

    Best practices indicate that when you send a supplier a purchase order, the supplier will review the order and send back (at minimum) hand written beside each item on your purchase order the quantity currently available to ship and the date that each item can be shipped. Especially in the case of backordered items.

    Your next move is to communicate which items you require immediately or can wait for and/or let the supplier know that you are cancelling the item(s) that are backordered or the entire purchase order to order from a different supplier that can deliver these items in a timely fashion.

    The suppliers “interpretation” of the expected delivery date on your purchase order is just that. The date that you expect the items to arrive at your site.

    If you are having difficulty with the supplier delivering to your required dates, you may have to ask 1. if you are allowing a reasonable amount of time from source to destination 2. Speaking with the supplier to learn if they have changed their business practices and are now “making to order” rather than carrying inventory 3. have they changed shipping companies 4. Do you have a contract in place with the supplier stating that they must carry inventory on your behalf 5. Any other changes that are affecting delivery?

    Finally, shipping windows are typically used in cases of low dollar value low criticality items that orders can be held and shipped together on a regular frequency. Such as all items from Supplier A can be batched and shipped the last Friday of the month.

    Also please see my previous post in this string regarding best practices for Purchase Order processing

  33. Hello,

    I am an intern at my company and currently am working on a project and have some questions. I work as a buyer for my company which has a large warehouse. The goal of one portion of my project is to see how our suppliers interpret our purchase orders to determine if we should stick with a general due in DC date or go to a shipping window? I was just wondering if maybe their was a standard on how purchase orders are interpreted from the supplier side? Like what verbage is normally used? What is the typical terminology on when their order is due? Right now we just have a “promised date” which we interpret as the date its due in our DC. We feel that suppliers may interpret this differently. Would you know a good place to look in regards to industry standards regarding these issues.

  34. Purchase orders need to be signed by both parties, With out signing means that you have not agreed to the terms and condition and there is not a bonded document between the two parties.

    1. If we look at a purchase order as a contract then it would make sense that the document would need to be signed by two parties.

      If one party were to sign it first then send it off to the 2nd party, the first party would essentially be agreeing to the contract but the purchase order wouldn’t be binding until the 2nd party signed as well.

      Nevertheless, the first party to sign should treat the PO as binding regardless of the action of the 2nd to minimize risk.

  35. which department of any organization makes and maintains the purchase orders?
    Either sourcing department or planning department?

    1. Hi Naveed,

      It depends on the organization – but typically it is done by the purchasing/procurement department, operations or finance.

    2. I believe planning should do it, they would gain ownership and relay on themselves for the delivery on time of the orders and sourcing can focuse on strategic projects and savings.

      what does the experts think about this?

  36. Dear Sirs, sorry, in my last email: ‘often don’t any acknowledgement’ should read ‘often don’t send any acknowledgement’.

  37. Dear Sirs,
    As MD of my small engineering company, I write out Purchase Orders as outlined above but often the metal parts suppliers that should be producing the parts I request, don’t produce the parts on time (if at all) as detailed in my Purchase Orders.
    1, what is legal ‘acceptance’ of my Purchase Orders? IE small engineering companies often don’t any acknowledgement, but just produce the parts and phone me or wait for me to ask if they have produced the parts yet. So, I guess if no definite ‘acceptance’, my POs are not legally binding on these suppliers? Is that correct. So what is ‘acceptance’?
    2, How can I make these suppliers hurry up and produce the parts in the time stated on the POs (and initially verbally agreed dates by phone before hand) and can I apply penalties?
    Many thanks in anticipation.

    1. Thank you for your questions, and thank you for being so concise.

      Legal “Acceptance” of a Purchase Order is where the Supplier/Vendor actually signs the acceptance of the order by email or fax that indeed have capacity to fulfill your order. Up until recently, many companies have not had to ask for explicit “acceptance” of their purchase orders because they had a longstanding relationship with the suppliers and each “expected” that the po would be accepted and acted upon. Having said that, best practice has also been to ensure that the supplier/vendor had indeed received the po in the first place. Many times I have followed up on a po the day after sending it to a supplier only to hear that “The dog ate the po” so, “No” they didn’t have it or processed it. If you treat this as a lesson and I will use the example of paper PO’s here;
      Day 1 – create and send po to supplier/vendor, file pops sent today in a folder “PO’s sent NOT confirmed”
      Day 2 – Call or email all the suppliers/vendors and confirm they received the po’s that were sent. Also ask if they can fulfill the order and when you can expect the goods to arrive. Make notes on the po and file the po in the “PO’s issued/Good Not Received” folder
      Weekly – go through the “PO’s issued/Good Not Received” folder and follow up with the suppliers regarding status of the orders. Making any new notes on the PO’s. Any PO’s that have goods received in full, move to the folder. “Completed PO’s”
      In answer to your question: “How can I make these suppliers hurry up and produce the parts in the time stated on the PO’s” It’s not so much about making them do anything as it is to know where you stand and be clear from the start. I would highly recommend having a clause on your PO that states: “All items listed on this PO are required by (date) in full. IF you are not able to provide all of the items listed on this PO by the date, advise us immediately and do not accept this order” Another term that is used, though not as well is “Time is of the essence for the delivery of this order” and finally, you can impose penalties for non-performance as long as you have those terms listed on your PO and they have signed acceptance of the order.
      I hope this helps for your future orders. The Best practice is always to have good relationships with your suppliers and have them clearly understand what it is and when it is you need from them. You are not alone, this same argument comes up with quality of product delivered issues.

  38. Can a buyer / purchase in charge verify invoices ? I am a buyer in my company and I am being told to verify invoice and the finance rely on making payments based on my verification. Is it a good practice ?

    1. Yes, as the buyer, it’s good practice to verify invoices before payment.

      The buyer is the best person in the organization to verify if the invoiced goods/services match with what the company requested (quantity, unit cost, etc).

  39. I received a purchase order for two items
    1. The product which is covered for a year of warranty
    2. An AMC for 3 years post warranty period.

    The product was delivered and the warranty period was over. Both parties were expected to sign an AMC contract which did not happen. Now I have payment dispute with the buyer on another PO and therefore want to cut all association with the buyer. Therefore I do not want to enter into the AMC agreement
    My question is that since I have delivered and invoiced for one item in the PO, is it required that I provide the second item? Can I refuse to enter into the AMC agreement and not raise an invoice?

    1. Hey Kevin,

      Sorry about the delayed response.

      First off, this should not be taken as legal advice. It’s just my understanding of Purchase Orders.

      Creating a purchase order is really just the first step in the purchase to pay process. The PO protects the seller in case the buyer refuses to pay for goods delivered or services rendered in the future. A purchase order doesn’t bind the vendor to produce a good unless further contracts are signed or other agreements are made.

      A purchase order is an expression of interest from the buyer that they desire a good or service from a particular vendor. The Purchase Order would still need to accepted by the vendor or seller.

      You can refuse to accept purchase orders.

      If you already accepted the terms for the two items then breaking the agreement for the second item may cause problems. You may run into legal issues, with punishments set out in the agreement, usually in the form of a fine.

      Hope this helps.

  40. Do purchase orders require terms and conditions? I mean, could someone just write something on a napkin, sign it, and call it a purchase order, and it would be a legally binding contract?

    Not sure if it matters, but I’m in California.


    1. Hello Cath,

      Thanks for the question.

      A purchase order does need terms – specifically types, quantities, and agreed prices for products or services. What makes a purchase order a legally binding contract is its acceptance by the seller. So, technically speaking, if you included the aforementioned details on a napkin and it was accepted by the seller, it would be good to go.

      With that said, you might have a hard time convincing a seller to accept a purchase order in such a form. Purchasing best practice is to use a standard purchase order form – such as the one electronically generated in Procurify – for all purchases.


      1. Dear Sean,
        could you please elaborate on the ‘acceptance’ part. Does a PO need to be signed buy the vendor, or what is meant by ‘accepting’ the details?
        Many thanks,

      2. Great question, Marek.

        The answer is — there is no fixed way to accept a Purchase Order. Different vendors, buyers follow different procedures; it is, however, crucial that there is utmost clarity between the buyer and the seller on whether a Purchase Order has been accepted, or not. And that is only possible if there is a clear line of communication between the two, and records or documentation to prove that both the parties have clearly understood each other.

        In most cases, the buyer sends the Purchase Order; the seller receives it, and then either emails or faxes, or snailmails the buyer to indicate that he accepts the Purchase Order (along with the Terms & Conditions mentioned in it). Alternatively, the seller can contact the buyer (using communication that can be legally recorded for reproduction later, should something go wrong) and establish that he disagrees with a part of the order, and that he would be unable to process it unless the buyer is willing to make concessions or changes to it.

        Either way, email, fax, or any form of “written” communication is essential to not only convey to the buyer that the PO has been accepted/rejected but to also establish on record what transpires between the two parties.

        I think you will find this post very useful.