Purchase

Purchase Order (PO)

A formal order document sent to a supplier to buy goods

Definition

A purchase order (PO) is a formal document that a buyer sends to a supplier to request the supply of specific goods or services. It specifies the item names, quantities, agreed prices, delivery date, payment terms, and other conditions. Unlike a purchase invoice which is issued after the transaction, a purchase order is created before the goods are delivered. It acts as a legally binding agreement once accepted by the supplier. For Indian small businesses, purchase orders help maintain discipline in procurement, prevent unauthorized purchases, and provide a clear paper trail. POs also help you track pending orders, compare supplier quotations, and plan your inventory replenishment. Using purchase orders ensures that you receive exactly what you ordered at the agreed price, reducing disputes with suppliers.

How It Works

  1. 1When your stock runs low or you need new products, you create a purchase order listing what you need, the agreed prices, quantities, and delivery date, and send it to the supplier.
  2. 2The supplier reviews and accepts the PO, then ships the goods.
  3. 3When goods arrive, you verify them against the PO to ensure you received the correct items and quantities.
  4. 4The PO is then converted into a purchase invoice for recording in your books and claiming Input Tax Credit.

Example

You own a mobile accessories shop in Delhi and need to restock 500 phone covers. You create a Purchase Order to your supplier in Shenzhen listing: 200 units of Model A at Rs. 80 each, 300 units of Model B at Rs. 120 each, totalling Rs. 52,000. The PO mentions delivery by 15th of next month with 30-day payment terms.

How Stock Register Handles This

  • Create purchase orders from low-stock alerts — items below reorder level are auto-suggested with recommended quantities
  • Track PO status from sent to partially received to fully received, so you always know what is pending from suppliers
  • Convert purchase orders into purchase invoices upon delivery with one click — quantities and rates carry over automatically
Learn more about Purchase Order Management →

Related Terms

Purchase Invoice / Purchase BillReorder LevelDelivery ChallanProforma Invoice

Related Guides

Purchase Orders Guide

Frequently Asked Questions

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

A purchase order (PO) is a document you send to a supplier before receiving goods — it is your formal request to buy. A purchase invoice (also called a bill) is the document the supplier sends you after delivering the goods — it is their demand for payment. The PO comes first and sets the terms; the purchase invoice follows and triggers the actual accounting entry and payment.

Is a purchase order mandatory for small businesses?

There is no legal requirement for small businesses to issue purchase orders. However, using POs is a strong business practice that prevents disputes over pricing, quantities, and delivery terms. POs create a paper trail that helps during audits and protects you if a supplier delivers wrong or excess goods. For businesses with multiple people handling purchases, POs prevent unauthorized buying.

How does a purchase order help with inventory planning?

Purchase orders give you visibility into incoming stock. You can see what has been ordered, expected delivery dates, and pending quantities. This prevents double-ordering and helps you plan storage space. By analysing PO history, you can identify seasonal demand patterns, negotiate better rates with regular suppliers, and maintain optimal inventory levels without overstocking.

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