What Is a Purchase Order?
Purchase Order

A purchase order, usually shortened to PO, is how many organisations buy things. Instead of a phone call or an informal email, the buyer sends the supplier a numbered document setting out exactly what it is ordering and on what terms. For the buyer, it controls spending: only approved purchases get a PO. For the supplier, it is a clear instruction and, crucially, the reference that must appear on the invoice for it to be paid.

What a purchase order contains

Days to payment on 30-day terms

• Invoice quotes the PO30 days
• Returned, resent after 10 days40 days
• Returned twice50 days or more

How purchase orders are used

Budget control. A buyer's staff raise a PO, a manager approves it, and only then is the order placed. That stops unapproved spending.

A clear contract. The PO sets out the price and terms the buyer expects. When the supplier accepts it, the order is agreed, which settles most later arguments about what was ordered.

Invoice matching. When the invoice arrives, the buyer's accounts team matches it to the PO, and often to a delivery note or goods received record: the three-way match. If the invoice matches, it is approved for payment. If not, it goes back.

Purchase order and invoice compared

What suppliers must do with a PO

If a customer sends you a PO, read it before you start work. Check the description, quantities, prices and delivery date match what you quoted. If anything differs, raise it before you accept, because accepting the PO may mean accepting its terms. Then, when you invoice:

• quote the PO number exactly, in the format given
• describe the goods or services the same way the PO does, line by line
• invoice the prices and quantities on the PO, plus any changes the customer has approved in writing
• send the invoice to the address the PO specifies

An invoice that does all four is matched and approved quickly. One that misses the PO number is usually returned unpaid, and your payment terms effectively restart when you resend it. The guide on how to send an invoice covers getting through a customer's approval process.

When the work changes

If the customer asks for more than the PO covers, ask them to amend the PO or raise a new one before you do the extra work. Without an approved PO for the extra, the invoice line for it may not match anything, and the accounts team will query it. The guide on invoice disputes shows why written agreement to changes matters.

A worked example

A joiner quotes a café £390 for three oak shelves. The café raises PO-2026-00481 for £390, 30-day terms, invoices to accounts payable. The joiner fits the shelves on 12 March and invoices the same day: invoice INV-0042, "Supply and fit three oak shelves, PO-2026-00481", £390. The café's system matches the invoice to the PO and the delivery confirmation, the manager approves it, and it is paid in the next payment run with a remittance advice quoting both numbers. Had the PO number been missing, the invoice would have sat in a queue until someone worked out which order it belonged to.

The three-way match explained

Larger buyers pay only when three records agree: the purchase order (what was ordered), a goods received or delivery record (what arrived), and the supplier's invoice (what is being charged). Their accounting system compares the three line by line. Where quantities or prices differ beyond a small tolerance, the invoice is held for someone to investigate. For a supplier, the lesson is practical: invoice what was ordered and delivered, in the same units and descriptions, and flag any difference before you invoice rather than after. A two-line email explaining a short delivery saves weeks of waiting.

Purchase orders from the public sector

Public bodies nearly always buy through purchase orders, often issued from procurement systems and sometimes requiring invoices through a supplier portal or as an e-invoice. Bodies covered by the Public Procurement Act 2023 must accept e-invoices that comply with the European standard EN 16931, and some, such as NHS Supply Chain, require suppliers to send e-invoices through the Peppol network. Public sector customers should usually pay within 30 days of receiving a valid invoice, so getting the PO number and format right matters even more.

Reading the terms on a PO

A purchase order often carries the buyer's standard terms, printed on the back or linked. They may set payment terms, delivery obligations, liability, cancellation rights and, sometimes, longer payment periods than you quoted. Read them before accepting, especially from a new customer. If they conflict with your quote, say so in writing and agree which terms apply. Whatever is agreed, an agreed payment period with a business should usually be within 60 days; see invoice payment terms.

Should small businesses issue purchase orders?

For your own buying, a PO system is optional. A sole trader buying materials from a merchant rarely needs one. But the discipline behind it, confirming in writing what you are ordering and at what price before the supplier starts, prevents most supplier disputes. Even a short email that the supplier confirms does the same job.

Blanket and framework purchase orders

For regular work, some customers issue a blanket PO: a single order covering a period or a total value, against which you invoice repeatedly. Each invoice quotes the same PO number, and the customer tracks how much of the total has been used. Check the remaining value before you invoice; if the blanket PO is nearly used up, ask for a new one before it runs out, or your next invoice will not match. Framework agreements in the public sector work in a similar way, with individual call-off orders under an overarching agreement.

Common mistakes suppliers make with POs

• Starting work before the PO arrives. If the customer's process requires a PO, work done without one may be hard to invoice.
• Mistyping the PO number. A single wrong digit can stop the match. Copy it exactly.
• Describing the work differently from the PO. Use the PO's wording and line structure.
• Invoicing extras without an amended PO. Ask for the amendment first.
• Sending the invoice to your contact rather than the address on the PO. It may never reach accounts payable.
• Ignoring the PO's terms. They may differ from your quote, including on payment dates.

Purchase orders and your records

For a supplier, the PO is evidence of the agreement behind an invoice. Keep it with the invoice. If a customer ever disputes the price or scope, the PO they issued is the strongest evidence you have. For a buyer, POs sit alongside supplier invoices and delivery notes as records of what was bought and why.

Purchase orders and VAT

A purchase order is not a VAT document. The buyer reclaims VAT from the supplier's VAT invoice, not from the PO, and the supplier accounts for VAT based on the invoice and the tax point rules. A PO may show VAT for budgeting, and it should agree with the invoice, but it does not replace it. If a VAT-registered buyer's PO shows prices excluding VAT, your invoice adds VAT at the correct rate; if it shows VAT-inclusive prices, check the net figure matches. The VAT calculator helps reconcile the two.

Purchase orders and e-invoicing

From April 2029, every VAT invoice will have to be issued as an e-invoice. In structured e-invoicing standards, the buyer's order reference is a dedicated field, which the buyer's system uses to match the invoice to the purchase order automatically. Getting into the habit of quoting PO numbers accurately now will make that switch simpler; the e-invoicing hub explains what is known about the UK mandate so far.

Related terms

A PO usually follows a quotation and comes before a delivery note, an invoice and a remittance advice. If the buyer later asks for a price reduction, it may send a debit note; the supplier adjusts with a credit note. For payment dates, the invoice due date calculator turns the PO's terms into a date.

People also ask

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