What a purchase order is and what goes on it

A purchase order, or PO, is a written order from a buyer to a seller. It lists the types, quantities and agreed prices of the products or services the buyer wants.¹

Wikipedia calls it a commercial document issued by a buyer to a seller. Businesses use it to control what they buy from outside suppliers.¹

What you need before you write one

• The supplier's name and contact details.
• What you want, described so nobody has to guess.
• The quantity and the agreed price for each line.
• A delivery address and the date you need the goods.
• Any payment terms you've agreed with the supplier.

If you don't have the agreed price yet, ask for it first. A PO with a guessed price causes arguments later.

What goes on it

Most POs are short. Wikipedia says most contain little more than a list of the goods or services wanted, along with price, payment terms and shipping instructions.¹

ERPNext's documentation describes a PO in the same spirit and lists extras you can add as needed, such as payment terms, shipping details and terms and conditions.²

A practical layout:

• A PO number. One unique number per order. See numbering purchase orders.
• Date issued. The day you place the order.
• Supplier. Name and address.
• Line items. Description, quantity, unit price and line total.
• Delivery details. Where to send it and by when.
• Terms. Payment terms and anything else you've agreed.
• Approval. Who signed it off. Approval limits explains how that's usually set up.

What a PO does and doesn't do

It's a record of what the buyer has asked for. ERPNext's manual puts it as the commercial commitment, the thing later receipts and supplier bills should be checked against.²

It isn't a bill or an invoice. Payment is normally made against the supplier's invoice. Whether an order creates a legal obligation depends on acceptance and the law, so ask a lawyer if it matters. The difference between a PO and an invoice gets its own page.

Software that records a PO doesn't necessarily change your stock or your books yet. In ERPNext, submitting a PO doesn't receive stock or post a General Ledger entry.² Those happen when goods arrive and the bill is booked.

Is a PO a contract?

Not by itself. Wikipedia says issuing a purchase order doesn't itself form a contract. If no earlier contract exists, the seller's acceptance of the order is what forms one.¹

Contract law varies by country and by state. If a large order matters to you, ask a lawyer to look at your standard terms. Don't rely on a template alone.

When you can skip it

Some organizations encourage staff to use a purchasing card for low-value purchases rather than raising a PO.¹ A small business can set its own rule here. Pick a dollar limit, write it down, and tell staff.

Before you send it

• Check the supplier name against their last invoice.
• Check that every price matches what was quoted.
• Make sure the delivery address is the one that will actually receive goods.
• Keep a copy where the person who receives the goods can find it.

That last copy matters later. The person at the dock needs something to check the delivery against, which is the subject of receiving goods against a PO.