Definition
A purchase order, or PO, is a commercial document created by a buyer and sent to a seller to authorize a purchase. Once the seller accepts it, the PO becomes a binding agreement that specifies exactly what is being bought, at what price, and on what terms.
What a PO contains
- A unique PO number for tracking and reference.
- Buyer and seller details.
- Line items with descriptions, quantities, and agreed unit prices.
- Delivery date, shipping address, and payment terms.
The PO-to-invoice flow
The buyer issues the PO, the seller confirms and fulfils the order, and then the seller sends an invoice that references the PO number. Accounts payable matches the invoice against the original PO (and often a delivery receipt) before approving payment. This matching step helps prevent overbilling and errors.
PO vs invoice
A PO is created by the buyer before goods change hands and represents a request to purchase. An invoice is created by the seller after delivery and represents a request for payment. Together they bookend a transaction and provide a clear audit trail.