Purchase Order
A Purchase Order (often shortened to PO) is a formal document issued by a buyer to a supplier that confirms an intention to purchase goods or services. It sets out the details of what is being ordered, including quantities, agreed prices, delivery requirements and payment terms.
A purchase order acts as a written agreement between both parties before goods are supplied. It helps businesses manage spending, track orders and reduce errors. In logistics and supply chain operations, purchase orders are often used as the starting point for the movement of goods from a supplier to a warehouse, distribution centre or final destination.
Table of Contents
What is included in a Purchase Order?
A purchase order usually contains key information needed for the supplier to process an order correctly.
Typical details include:
- Purchase order number or PO reference
- Buyer and supplier details
- Product descriptions
- Quantity of goods ordered
- Unit prices
- Total order value
- Currency
- Delivery address
- Delivery date or required shipping schedule
- Payment terms
- Incoterms where applicable
- Special instructions or product specifications
Each purchase order has its own unique reference number. This allows both the buyer and supplier to track and identify the order throughout the purchasing process.
Why are Purchase Orders important?
A purchase order creates a clear record of what has been agreed before goods are dispatched. This reduces misunderstandings and gives both parties a reference point if questions arise later.
Businesses use purchase orders for several reasons:
- To control purchasing activity
- To track company spending
- To maintain accurate financial records
- To reduce duplicate or incorrect orders
- To improve inventory planning
- To create an audit trail
- To support supplier management
Without a purchase order process, businesses can lose visibility over spending and stock requirements.
For larger organisations, purchase orders are often part of internal approval workflows where managers or departments must approve spending before orders can be placed.
How does a Purchase Order work?
The purchase order process usually follows a series of steps.
1. Requirement identified
The buyer identifies a need for goods or services. This could be stock replenishment, raw materials, equipment or outsourced services.
2. Purchase Order created
The buyer creates a purchase order with all relevant information.
3. Supplier reviews the order
The supplier checks the details and confirms whether the order can be fulfilled.
4. Order acceptance
The supplier accepts the purchase order. In many cases, acceptance creates a contractual obligation between the parties, although this can vary depending on terms and local laws.
5. Goods are supplied
Products are manufactured, picked or prepared and shipped according to the agreed schedule.
6. Delivery and verification
The buyer receives the goods and checks that the delivery matches the purchase order.
7. Invoice and payment
The supplier issues an invoice and the buyer makes payment according to agreed terms.
At Barrington Freight, we specialise in making your importing and exporting straightforward. From customs clearance to finding the right commodity codes, our expert team is here to assist. Don’t let the complexities of global trade hold you back. Reach out to Barrington Freight for efficient and reliable shipping solutions.
Purchase Order vs invoice
Purchase orders and invoices are closely linked, but they serve different purposes.
| Purchase Order | Invoice |
|---|---|
| Created by the buyer | Created by the supplier |
| Sent before supply | Sent after goods or services are provided |
| Confirms intended purchase | Requests payment |
| Sets out agreed terms | Shows amounts due |
| Used for purchasing control | Used for accounting and payment |
Businesses often compare purchase orders and invoices during payment checks. This process is commonly known as invoice matching.
What is three-way matching?
Many companies use a process called three-way matching to reduce payment errors and fraud risk.
Three-way matching compares:
- Purchase Order
- Goods receipt note or delivery confirmation
- Supplier invoice
Payment is usually approved only if all three documents match.
For example:
- Purchase order says 500 units ordered
- Delivery note confirms 500 units received
- Invoice requests payment for 500 units
If one document shows a different quantity or price, the discrepancy can be investigated before payment is released.
Purchase Orders in logistics and freight forwarding
Purchase orders play an important role in international trade and supply chains.
Freight forwarders and logistics providers may use purchase order information to:
- Plan cargo collections
- Consolidate shipments
- Arrange warehouse handling
- Schedule transport
- Monitor supplier shipping activity
- Improve supply chain visibility
Some importers use PO management systems that connect suppliers, freight providers and internal purchasing teams. These systems can provide real-time updates from order placement through to final delivery.
For example, if multiple suppliers in different countries are producing goods under separate purchase orders, shipment planning can begin before production is complete.
Common problems with Purchase Orders
Even well-managed businesses can encounter issues with purchase orders.
Common examples include:
- Incorrect quantities
- Wrong product codes
- Pricing errors
- Duplicate purchase orders
- Missing delivery information
- Delayed approvals
- Differences between purchase orders and invoices
Small mistakes can create larger operational problems. An incorrect purchase order may lead to delayed shipments, customs issues or inventory shortages.
Clear processes and automated purchasing systems can help reduce these risks.
Manual vs electronic Purchase Orders
Purchase orders were traditionally created using paper documents or spreadsheets. Many businesses now use electronic purchasing systems.
Electronic purchase orders can offer several advantages:
- Faster approval processes
- Reduced manual data entry
- Better visibility of spending
- Easier document storage
- Integration with accounting systems
- Improved reporting
Modern enterprise systems can automatically generate purchase orders when stock levels fall below predefined thresholds.
Key points to remember
- A purchase order is a formal document sent from a buyer to a supplier.
- It confirms the products or services being ordered and the agreed terms.
- Purchase orders help control spending and reduce errors.
- They are different from invoices.
- Purchase orders support logistics planning and supply chain management.
- Accurate purchase order information helps prevent delays and disputes.
A structured purchase order process gives businesses stronger control over purchasing activities and provides a clear record of transactions throughout the supply chain.
About the Author
Simon Poole began his career in production planning, quickly rising to manage 24-hour manufacturing lines and oversee a team of 140 staff. In 2007, he joined Barrington Freight, where he brought his operational expertise into the logistics sector. Appointed Operations Director in 2021, Simon now leads all day-to-day operations, including sea, air and European freight, working closely with clients and partners worldwide.
We’re friendly, easy to work with, honest and we don’t charge the earth.
For advice and information on shipping time from China to the UK, call 01268 525444 or email us today.
