Purchase Order (PO)
A Purchase Order (PO) is a formal document a buyer issues to a supplier to order goods or services, stating exactly what is being bought — items, quantities, agreed prices, delivery date and place, and terms. Once the supplier accepts it, the PO becomes a legally binding contract for that purchase, and it carries a unique PO number used to track the order through to delivery and payment.
The PO is the backbone of the procure-to-pay cycle: it follows a purchase requisition (the internal request to buy) and precedes goods receipt and the supplier's invoice, which are matched against it in three-way matching before payment. POs give organisations control, budget commitment and an audit trail over spending, prevent unauthorised (maverick) buying, and feed inventory and accounting systems. Whether raised manually or automatically from a system, the purchase order is the central control document of business purchasing.
The PO is where spending gets controlled — it commits budget, creates a binding contract, and gives the number that ties requisition, receipt, invoice and payment together. Without disciplined POs, organisations lose visibility and control over spend and open the door to maverick buying. It is the single most important control document in purchasing.
Is a purchase order legally binding?
Yes — once the supplier accepts it, the PO becomes a binding contract for the specified goods or services at the stated terms.
How does a PO differ from a purchase requisition?
A requisition is the internal request to buy something; the PO is the formal order sent to the supplier once the requisition is approved.