What Is a Purchase Order? PO Basics for Small Businesses

A purchase order (PO) is a document a buyer sends to a seller to order goods or services. It lists what's being bought, the quantity, the price, the delivery details and the terms, and it carries a PO number. The seller delivers what the PO lists and then sends an invoice that quotes the PO number, so the buyer can match the invoice to the order before paying.

What a purchase order includes

• The PO number, unique to that order.
• The buyer and seller, with their names and addresses.
• The items or services, with a description, quantity and unit price for each line.
• Delivery details: the date and the address, or for services, the dates and what will be delivered.
• Payment terms, or a reference to an existing agreement that sets them.
• Who approved it, such as a signature or an approval record.

How a PO fits with a quote and an invoice

1. Quote or estimate: the seller proposes a price and scope. See estimate vs quote vs proposal.
2. Purchase order: the buyer orders on those terms and gives the order a PO number.
3. Delivery: the seller delivers the goods or services.
4. Invoice: the seller asks for payment for what was delivered, quoting the PO number. See invoice vs purchase order.

The buyer compares the invoice with the PO and with what was received before paying.

Is a purchase order a contract?

That depends on the law that applies and on the terms the buyer and seller accept, so ask a lawyer where needed. For one jurisdiction, US federal purchasing, the Federal Acquisition Regulation (FAR) defines a purchase order "when issued by the Government" as "an offer by the Government to buy supplies or services, including construction and research and development, upon specified terms and conditions, using simplified acquisition procedures" (FAR 2.101). FAR 13.004 adds: "The order is an offer by the Government to the supplier to buy certain supplies or services upon specified terms and conditions. A contract is established when the supplier accepts the offer." (FAR 13.004, FAC 2026-01, effective March 13, 2026, opened October 29, 2026). These FAR rules apply to US federal purchases only.

Why businesses use purchase orders

• Approval before spending: someone with authority approves the order before it's placed.
• Matching before paying: the buyer checks that the invoice matches what was ordered and received.
• Separating duties: the open textbook Principles of Accounting, Volume 1 from OpenStax says: "One common internal control is to have one employee place an inventory order and a different employee receive the order as it is delivered." (OpenStax, section 8.3, opened October 29, 2026).

When you receive a purchase order

• Check it against your quote: the items, quantities, prices and dates.
• Ask for a changed PO if the order changes, rather than accepting a spoken change.
• Invoice only what you've delivered, line by line, at the PO's prices.
• Quote the PO number on every invoice for that order. A buyer that uses POs may hold an invoice it can't match to one.

Sample: invoicing against a purchase order

This is a sample with invented figures. A buyer sends PO-7781 for 200 units at $18.50 each.

• PO total: 200 × $18.50 = $3,700.00
• First delivery: 190 units, with 10 to follow
• Invoice INV-2209, quoting PO-7781: 190 × $18.50 = $3,515.00
• Still to deliver and invoice on the PO: 10 × $18.50 = $185.00
• Check: $3,515.00 + $185.00 = $3,700.00, the PO total

The buyer matches INV-2209 to PO-7781 and to the 190 units received, and the second invoice for $185.00 follows the last delivery.

Where Billed fits

Billed's purchase order template page describes creating a purchase order with Billed: "Set up your business details once, then build the PO with itemized lines and clear totals." Among what the template includes, it lists "Itemized lines with quantity, unit price, and totals" and "Payment terms set before the purchase is made".

Billed's invoice software page says you can "convert an approved estimate into an invoice" and "Add files to your invoices and estimates." Its estimating software page describes "converting approved estimates into invoices with just a few clicks."

Related Articles

• Invoice vs. Purchase Order
• Estimate vs Quote vs Proposal
• Invoice Compliance Requirements
• How to Track Invoices Effectively
• How to Create a Professional Invoice

Frequently Asked Questions

What is a purchase order?

A document a buyer sends to a seller to order goods or services. It lists the items, quantities, prices, delivery details and terms, and it has a PO number that the seller quotes on the invoice.

What is the difference between a purchase order and an invoice?

The buyer sends the purchase order to place the order. The seller sends the invoice after delivering, to ask for payment, and quotes the PO number on it.

Should I put the PO number on my invoice?

Yes, if the client gave you one. The buyer uses it to match your invoice to the order. In the sample on this page, invoice INV-2209 quotes PO-7781 and bills the 190 units delivered, $3,515.00 of the $3,700.00 order.

Is a purchase order legally binding?

It depends on the law that applies and the terms both sides accept, so ask a lawyer where needed. For US federal purchases, the FAR says: "The order is an offer by the Government to the supplier to buy certain supplies or services upon specified terms and conditions. A contract is established when the supplier accepts the offer."