Purchase Order (PO)
A formal document issued by a buyer to authorize a purchase from a seller.
Definition
A purchase order (PO) is a legally binding document that a buyer sends to a seller to authorize a purchase. It specifies the products or services to be provided, quantities, prices, delivery requirements, and payment terms. Once accepted by the seller, a PO becomes a contract between the parties.
POs are standard practice in B2B commerce, especially with larger organizations. They provide documentation for budgeting, approval workflows, and accounts payable processing. When you receive a PO, you're authorized to proceed with the work or shipment and can invoice against the PO number.
Why It Matters
For vendors, POs provide payment certainty. A valid PO means the buyer has approved the purchase and allocated budget—you're not likely to face "we didn't authorize this" disputes. Many vendors require a PO before beginning work or shipping products, especially for larger orders.
For buyers, POs enable spending control and record-keeping. Requiring POs for purchases above a threshold ensures proper approvals and prevents unauthorized spending. The PO trail also simplifies invoice reconciliation—the accounts payable team can match invoices to approved POs before payment.
Examples
- 1
A corporate client issues PO #2024-00567 to authorize $25,000 in consulting services, which the consultant references on all invoices.
- 2
A manufacturer requires POs for all orders over $1,000, rejecting invoices that can't be matched to valid purchase orders.
- 3
A vendor portal allows clients to create and track POs online, streamlining the ordering and invoicing process.
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