Invoicing
Purchase Order Template: What a PO Must Include
A purchase order runs in the opposite direction to everything else on this site. You are the buyer, you are committing to a purchase, and the document you issue is what the supplier will quote on their invoice so that it can be paid without anyone having to work out what it was for.
By Arshad Hossain · Published
The short version
- The buyer issues a purchase order. The seller issues the invoice.
- A PO number is what lets the eventual invoice be approved automatically.
- Once accepted, a purchase order is a commitment to buy.
- Say when and where delivery is expected, not just what is being bought.
What a purchase order must carry
A purchase order is an instruction, so it has to be specific enough that a supplier can fulfil it without calling you, and structured enough that the invoice which comes back can be matched to it.
- A unique PO number, which the supplier must quote on their invoice
- The issue date and the date delivery is required
- Your organization's details, and the delivery address if it differs
- The supplier's details
- Each item with a clear description, quantity, unit and agreed unit price
- The total value being committed
- The payment terms that will apply once the invoice arrives
- Who authorized the order
Why the PO number matters so much
In any organization with an accounts payable function, the PO number is what turns an invoice into something that can be paid automatically. The invoice is matched to the purchase order and, usually, to a goods received note — three-way matching. If all three agree, payment proceeds without a human deciding anything.
This is why suppliers get invoices rejected for the apparently trivial sin of leaving off a PO number. The invoice has not failed a judgement; it has failed a lookup. If you issue POs, say clearly that invoices must quote the number, and if you receive them, ask at onboarding whether one is required.
Purchase order, quotation, invoice
The sequence for a typical purchase is: the supplier quotes a price, the buyer issues a purchase order accepting it, the goods or services are delivered, and the supplier invoices against the PO.
The direction of travel is the thing to keep straight. A quotation and an invoice both come from the seller. A purchase order comes from the buyer. Once the supplier accepts it, it is a commitment to buy on the stated terms.
| Document | Issued by | Says |
|---|---|---|
| Quotation | Seller | This is what it would cost |
| Purchase order | Buyer | I am committing to buy this |
| Invoice | Seller | This is now owed |
| Receipt | Seller | This was paid |
Changing a purchase order
Do not edit a PO the supplier has already accepted. Issue an amended one with a new revision or number and tell them which version supersedes which, so the invoice can still be matched against something.
If quantities change on delivery, that is usually handled at the matching stage rather than by reissuing the order. Agree the tolerance in advance — how much variance is acceptable without a new PO — because discovering you disagree at invoice time delays payment for everyone.
Purchase orders: common questions
What must a purchase order include?
A unique PO number, the issue and required delivery dates, both parties' details, the delivery address, each item with description, quantity and agreed unit price, the total committed, the payment terms, and who authorized it.
What should a PO number look like?
Short, unique and sequential — PO-1042 rather than a date or a project name. The supplier has to quote it on their invoice and your accounts payable system has to match on it, so anything ambiguous costs both sides time.
Why do invoices get rejected without a PO number?
Because accounts payable matches the invoice to the purchase order, and often to a goods received note, before paying. Without the number there is nothing to match against, so the invoice fails a lookup rather than a judgement.
What is a purchase requisition?
An internal request to buy something, raised by whoever needs it and approved inside your own organization. It comes before the purchase order and never reaches the supplier; the PO is what actually goes out.
What is three-way matching?
Comparing the purchase order, the goods received note and the supplier invoice before payment. If all three agree on what was ordered, what arrived and what is being charged, the invoice can be paid without manual approval.
Frequently Asked Questions
Do small businesses need purchase orders?
Can a purchase order be cancelled before delivery?
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