Purchase Order (PO)
A purchase order (PO) is a document a buyer sends to a supplier to authorize a purchase, listing the items, quantities, agreed prices, delivery date and payment terms. Once the supplier accepts it, it becomes a binding agreement.
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A purchase order is the buyer's authorization to buy at agreed prices, raised before the purchase so the supplier's invoice can be matched against it. Ardent Partners' State of ePayables 2025 found that 65.4% of invoices are linked to a purchase order on average, 84.0% at best-in-class AP teams and 47.3% at all others.
Key Industry Data
- 65.4% of invoices linked to a purchase order on average; 84.0% at best-in-class AP teams vs 47.3% at all others: Ardent Partners, State of ePayables 2025 (2025)
Definition
A purchase order is the buyer's written commitment to buy. It is raised before the purchase, usually after an internal requisition is approved, and carries a unique PO number that the supplier quotes on the delivery note and the invoice. In accounts payable the PO is the first document in two-way and three-way matching: it records what was agreed, so the invoice can be checked against it before payment. A PO is not an invoice. The PO says what the buyer intends to buy; the invoice says what the supplier is asking to be paid.
What a purchase order includes
A complete PO has the buyer's name and billing address, the supplier's name, a unique PO number, the order date, the ship-to address and requested delivery date, and a line for each item or service with a description or item code, quantity, unit of measure, unit price and line total. It also states tax, shipping, the order total, payment terms such as Net 30, and the person who approved it.
The fields that matter most for AP are the PO number, the line quantities, the unit prices and the terms, because those are what the invoice will be compared against. A PO with a single lump-sum line can only be matched on the total, which hides price and quantity errors.
The four types of purchase order
A standard PO covers a one-time purchase with known items, quantities, prices and delivery dates. A planned PO commits to items and prices but leaves delivery dates open; the buyer releases deliveries against it. A blanket PO commits to a supplier for a period and a maximum amount without fixing quantities, for example $100,000 of office supplies over 12 months, with each invoice drawing it down. A contract PO sets terms and conditions with a supplier, and separate standard POs are issued under it.
Blanket and contract POs reduce paperwork for repeat spend, but AP still has to track how much of the limit has been used so invoices beyond it are caught.
How to create purchase orders so invoices can be matched later
Matching only works if the PO exists before the invoice and its lines look like what the supplier will bill. Raise the PO before the order is placed. Use the supplier's item codes or descriptions and the same unit of measure they invoice in, such as cases rather than units. Enter the agreed unit price, not an estimate. Split the order into one line per item or service rather than a single total. Send the PO number to the supplier and ask them to quote it on every invoice and delivery note.
For installments or progress billing, record the expected schedule against the PO so each partial invoice can be checked against what is left, rather than flagged as a mismatch. Close the PO when the last invoice is paid so it cannot be billed again.
Why It Matters
POs give spending control before money is committed, not after the invoice arrives. They create the record that two-way and three-way matching rely on, make budget commitments visible, and give auditors evidence that a purchase was authorized. Without POs, AP can only ask whether an invoice looks reasonable, not whether it matches what was agreed.
Examples
Standard PO
Purchasing raises PO 12345 for 500 widgets at $5.00 from Supplier ABC, $2,500 total, Net 30. The invoice arrives quoting PO 12345 for 500 widgets at $5.00. It matches, the receipt confirms 500 arrived, and the invoice goes to approval.
Blanket PO drawdown
A blanket PO authorizes $100,000 of janitorial supplies over 12 months. By September, invoices total $91,500. A $12,000 invoice would take the total to $103,500, so it is flagged for the budget owner to raise the limit or reject it.
Unit of measure mismatch
A PO lists 1,200 units of gloves at $0.25 ($300). The supplier invoices 12 cases at $25.00 ($300). Totals agree, but a line match fails on quantity and price because the PO was entered in units and the supplier bills in cases of 100. Entering the PO in cases avoids the exception.
Common Mistakes
Raising the PO after the invoice arrives
An after-the-fact PO copies the invoice and controls nothing. Make the PO a requirement before ordering for the categories you match.
One lump-sum line for a multi-item order
A single total can only be matched on amount. Use one line per item or service so price and quantity differences show up.
Estimated prices on the PO
If the PO price is a guess, every invoice becomes a price exception. Enter the quoted or contract price, and update the PO when a price change is agreed.
Suppliers not quoting the PO number
Tell suppliers the PO number is required on invoices and return invoices without it. Matching an invoice to a PO by hand is slow.
Leaving POs open after the final invoice
An open PO can be billed again. Close it when the order is complete and review stale open POs monthly.
In Practice
- Decide which spend needs a PO, for example all goods and any service over a set amount.
- Approve the requisition, then raise the PO before the order is placed, using a template or your accounting system.
- Enter one line per item with the supplier's description, unit of measure and agreed unit price.
- Send the PO to the supplier and ask them to quote the PO number on every delivery note and invoice.
- Record the goods receipt when items arrive, or confirm service delivery with the budget owner.
- Match each invoice to the PO and receipt within tolerances, and route variances to the buyer.
- Close the PO when the final invoice is matched, and review open POs at month end.
How Aequo AP Helps
Aequo AP matches invoices to purchase orders line by line, and to delivery notes for a three-way match, with price and quantity tolerances set globally or per supplier. Purchase orders sync with QuickBooks Online, Xero and Zoho Books (FreshBooks has no purchase orders), and partial invoices that fit within what is left on a PO are tracked as partial invoices with billed-to-date per PO and per line. For a one-off PO, the free purchase order template and generator produce a document with the fields matching needs.
Start Free TrialFrequently Asked Questions
What is a purchase order?
A purchase order (PO) is a document a buyer sends to a supplier to authorize a purchase, listing items, quantities, agreed prices, delivery date and payment terms. Once the supplier accepts it, it becomes a binding agreement.
What is the difference between a purchase order and an invoice?
The buyer issues the PO before the purchase to say what it will buy and at what price. The supplier issues the invoice after delivery to request payment. AP compares the two before paying.
Is a purchase order legally binding?
A PO becomes a contract once the supplier accepts it, in writing or by shipping the goods. Until then it is an offer. Terms and conditions on the PO or a master agreement govern disputes.
What are the four types of purchase orders?
Standard, planned, blanket and contract purchase orders. They differ in how much is fixed up front: items, quantities, prices, delivery dates or only terms and a spending limit.
How do I create purchase orders so invoices can be matched to them later?
Raise the PO before ordering, use one line per item in the supplier's unit of measure with the agreed price, and require the PO number on every invoice. Then the invoice can be matched line by line.
Do all invoices need a PO?
No. Utilities, rent, subscriptions and small recurring services are often handled as non-PO invoices with approval by the budget owner. POs are most valuable for goods and larger or one-off purchases.
What is a blanket purchase order?
A blanket PO covers repeated purchases from one supplier over a set period up to a maximum amount, without fixing each order. Each invoice draws down the remaining balance.
Who approves a purchase order?
Usually the budget owner or a manager with the right spending authority, set by amount. The person approving the PO should not be the person who later approves the matching invoice for payment.
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Deep Dive Guides
Purchase order template
A purchase order with vendor, ship-to, line items and approval fields.
Purchase order generator
Create a numbered PO with totals and save it as a PDF.
three way matching
Product capability and workflow fit.
Purchase Order Matching Software Comparison: What Buyers Should Check
Compare PO matching software by the capabilities that matter: two-way and three-way matching, tolerance handling, line-level accuracy, exception UX, and ERP integration depth.
3-Way Matching
Automatically match invoices to POs and receipts. Resolve discrepancies before they become problems.
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