What Is a Purchase Order? (PO vs Invoice Explained)
A purchase order (PO) is the document a buyer sends to a seller to officially order goods or services at agreed quantities and prices. Once the seller accepts it, the PO becomes a binding agreement — and the reference number that ties the whole transaction together.
This guide explains what a purchase order contains, how the PO process works, and how a PO differs from an invoice.
What a purchase order includes
A clear PO leaves no ambiguity about what was ordered:
- A unique PO number for tracking.
- The buyer's and seller's (vendor's) details.
- The order date and required delivery date.
- A line for each item: description, quantity, unit price and line total.
- The subtotal, tax and total.
- Shipping address and delivery terms.
- Payment terms agreed with the vendor.
How the PO process works
The buyer issues the PO; the seller reviews and confirms it, which forms the contract. The seller then delivers the goods and sends an invoice that references the PO number. Finance matches the PO, the delivery and the invoice — a "three-way match" — before paying.
That PO number is the thread through the whole process: it lets both sides confirm they are talking about the same order and makes approvals and audits straightforward.
Purchase order vs invoice
A purchase order comes first and is created by the buyer to request goods. An invoice comes after and is created by the seller to request payment for goods delivered. They mirror each other and should reference the same PO number.
Using POs gives a business budget control and a clean paper trail: nothing gets ordered without an approved PO, and every invoice can be matched back to one.
Frequently asked questions
What is the difference between a purchase order and an invoice?
A purchase order is the buyer's request to order goods at agreed prices; an invoice is the seller's request for payment after delivering them. The invoice should reference the PO number.
Is a purchase order legally binding?
Once the seller accepts a purchase order, it generally becomes a binding contract for the goods, quantities and prices listed. The PO on its own is an offer until accepted.
Who creates the purchase order?
The buyer creates and issues the purchase order to the seller. The seller confirms it, delivers the goods, and then sends an invoice referencing the PO number.
Do small businesses need purchase orders?
POs help any business that wants budget control and a clear record of what was ordered. PaperKit's purchase order maker issues professional POs with online vendor confirmation and a PDF.