What purchase order means
A purchase order is the buyer committing in writing.
It sets out exactly what is being ordered, quantities, agreed prices, delivery dates and payment terms, and it carries a unique number both sides use as a reference.
Once the supplier accepts it, there is normally a binding contract on those terms. That is why a purchase order is worth far more to a supplier than a verbal instruction or an enthusiastic message from somebody in procurement.
How it is used
In corporate procurement the sequence is fixed. The buyer raises a purchase order, the supplier delivers against it, the supplier invoices quoting the purchase order number, and finance matches the three documents before paying.
That matching process is why invoices without a purchase order number sit unpaid. It is rarely refusal, it is that the invoice cannot be matched to an approved commitment, so nobody in the chain is authorised to release funds.
Key features
- Issued by the buyer, not the supplier
- Carries a unique number used on delivery notes and invoices
- States items, quantities, prices, delivery dates and payment terms
- Usually forms a binding contract once accepted by the supplier
- Used by finance to match order, delivery and invoice before payment
How this works in Nigeria
For small Nigerian suppliers selling to larger organisations, the purchase order is the difference between getting paid in thirty days and chasing for six months.
The practical rule is simple. Do not deliver against a phone call. Ask for the purchase order, check that the description and price match what you quoted, and quote its number on every delivery note and invoice. Where a client insists on urgent delivery before the paperwork exists, get the commitment in an email from somebody with authority, and follow up for the purchase order immediately.
Purchase order vs invoice vs quotation
A quotation comes first and is the supplier offering terms. It is not a commitment by the buyer.
The purchase order is the buyer accepting and committing to buy. It generally creates the contract.
The invoice comes after delivery and requests payment for what was supplied. So the direction of travel is quotation from supplier, purchase order from buyer, then invoice from supplier. Getting that order wrong is why suppliers end up delivering goods nobody formally ordered.
Limits and risks
A purchase order is only as good as the authority of the person who issued it. Organisations have spending limits, and an order issued above somebody's authority can be disputed.
It also governs only what it says. Where the buyer's standard terms are attached and conflict with the supplier's, there can be a genuine dispute about whose terms apply, which is worth resolving before delivery rather than after a problem.
Worth knowing
Check that the purchase order matches your quotation on price, quantity and specification before you deliver. Suppliers who spot a mismatch afterwards usually end up absorbing the difference.
Questions people ask
What is the difference between a purchase order and an invoice?
A purchase order is issued by the buyer to order goods or services and commit to the terms. An invoice is issued by the supplier after delivery to request payment. The order comes first, the invoice comes after.
Is a purchase order legally binding?
Once accepted by the supplier it generally forms a binding contract on the stated terms. Before acceptance it is an offer to buy.
Why does my client want a purchase order number on my invoice?
Because their finance process matches the invoice against the approved order and the delivery record before releasing payment. An invoice without the number cannot be matched, which is the most common reason invoices sit unpaid.
Should I deliver before receiving a purchase order?
It is risky. Without it you may have no documented commitment, and payment can stall for months. If urgency demands it, get written confirmation from somebody with authority and chase the purchase order immediately.
Can a purchase order be cancelled?
It depends on the terms and how far performance has gone. Once accepted and acted on, cancellation can amount to a breach. Well drafted terms say what happens on cancellation, including whether costs already incurred are recoverable.
Documents that use this
Read more on this
Importance and Benefits of a Purchase Order
Importance and Benefits of a Purchase Order: Serious Businesses Use It — You Should Too In the early stages of running a business, many entrepreneurs rely on informal arrangements when buying goods or services. A quick p…