Purchase Order

Purchase Order Definition

A purchase order (PO) is a formal document sent from a buyer to a seller authorizing a purchase. It specifies the items or services being ordered, quantities, agreed prices, delivery dates, and payment terms. Once accepted by the vendor, a PO becomes a binding agreement — and it's a key internal control for managing spending.

Purchase Order in Practice — Example

A nonprofit running an after-school program needs to buy 50 laptops for students. The operations manager creates a purchase order for 50 Chromebooks at $250 each ($12,500 total), net-30 payment terms, delivery by April 15th. The PO is approved by the executive director, then sent to the vendor. When the laptops arrive, the receiving team matches the shipment against the PO to verify quantities and pricing before the invoice is approved for payment.

Why Purchase Order Matters for Your Books

Purchase orders create a paper trail before money is spent. They prevent unauthorized purchases, budget overruns, and billing disputes. When a vendor invoice arrives, you match it against the PO to confirm you're paying for what you actually ordered and received.

For organizations with multiple people making purchases (especially nonprofits and growing businesses), POs provide spending controls. Nothing gets ordered without documented approval. This protects the business from rogue spending and simplifies audits.

POs also improve budgeting and cash flow forecasting. When you issue a PO, you know that expense is coming — even before the invoice arrives. This lets you plan cash needs more accurately.

How Purchase Order Shows Up in QuickBooks

QuickBooks Online Plus and Advanced include a Purchase Order feature. Go to Expenses → Purchase Orders → Create Purchase Order. Fill in the vendor, items, quantities, and amounts. When the bill arrives, you can convert the PO directly to a bill with one click. POs are non-posting transactions — they don't affect your financials until they're converted to bills. Run the Open Purchase Order List report to see outstanding orders.

Common Mistakes

Skipping POs for "small" purchases — without a threshold and process, small purchases add up and bypass spending controls

Not matching POs to invoices — if you don't verify that the vendor invoice matches the PO, you could overpay or pay for undelivered items

Creating POs after the fact — backdating POs defeats their purpose as a pre-authorization control

FAQ

Q: Is a purchase order the same as an invoice? A: No. A PO is sent by the buyer to authorize a purchase. An invoice is sent by the seller to request payment. The PO comes first; the invoice follows after delivery.

Q: Do I need purchase orders for my small business? A: Not legally required, but recommended once you have multiple people making purchases or your spending exceeds what one person can track. POs add accountability and prevent surprises.

Related Terms

Payable

Receipt

Source Document

Vendor Credit

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