Purchase order (PO)
Reviewed by Dasha ShakovVP Marketing, Proton
Updated
What is purchase order (PO)?
A purchase order (PO) is a buyer’s document ordering specific items, in specific quantities and at stated prices, from a supplier. It becomes binding once the supplier accepts it, and a distributor both receives POs from its customers and sends its own POs to the manufacturers it buys from.
How it works
A PO carries a PO number, date and buyer, the bill-to and ship-to addresses, each item’s part number, quantity, unit of measure and price, the requested delivery date, and freight and payment terms. The supplier accepts with an order acknowledgment or by shipping, though if the acknowledgment adds or changes terms, which terms apply can be disputed. Later changes go through a PO change, which in EDI is the 860 transaction.
The PO starts a chain of documents that should agree with it: acknowledgment, pick ticket, packing slip, bill of lading, receiving record and invoice. The customer checks the last of these against the PO in a three-way match.
Purchase order (PO) example
PO 45871 arrives as a 12-line PDF. The CSR enters it as a sales order and puts 45871 in the customer PO field, so the number prints on the packing slip and the invoice.
Related terms
- Sales orderA sales order is the distributor’s own record of a customer order in its ERP, listing the items, quantities, prices, ship-to address and delivery terms.
- Order acknowledgmentAn order acknowledgment is a supplier’s confirmation that it accepted a purchase order, stating what will ship, at what price and when.
- InvoiceAn invoice is the seller’s bill for goods or services delivered, listing the items, quantities, prices, freight, tax, payment terms and amount due.
- Three-way matchThree-way match is an accounts payable check that compares a supplier’s invoice with the purchase order and receiving record before the invoice is paid.
- Blanket purchase orderA blanket purchase order is a long-term order in which a customer commits to buy a set quantity or value of items over a period at agreed prices.
