Purchase Order — Definition, Sample Format and Process Flow

What is a purchase order?

A purchase order is a contract between the buyer and the seller. It provides specifics about the products required, delivery dates, and the terms of the arrangement including pricing.

Purchase order procedure

The process begins with departmental approval. The purchase order then goes to the requisitioner, and subsequently to the supplier. Once accepted by the vendor, it becomes a legally binding document which outlines the required items, the agreed-upon price, delivery expectations and payment terms.

What a purchase order contains

• Products ordered
• Quantities, in kilograms, metres, numbers or other units
• Pricing
• Vendor name
• Shipment and billing addresses
• Payment terms and conditions
• Delivery due date

Purchase order process flow

The workflow involves recording the basic details, obtaining managerial approval, notifying the supplier, receiving acceptance or rejection, confirming delivery dates, and finally receiving the goods along with verification, invoices and payment processing.

Purchase order vs purchase invoice

A purchase order is a contract placed before the goods arrive, and it is initiated by the buyer. An invoice is a bill issued after delivery, and it is initiated by the supplier.

How businesses manage purchase orders

Businesses track purchase order numbers through receipt notes and invoices, then match payments to vendors. Many use accounting software to automate this tracking and to report on order status and timely delivery.