Purchase order

A purchase order (PO) is the document a buyer sends to a supplier to place an order: what is being bought, how many, at what price, delivered where and by when. Four documents surround it and get confused with it. A purchase requisition comes first and is internal, one part of the business asking for approval to buy. The purchase order is the external step, the buyer's offer to buy on stated terms. An order confirmation or acknowledgement is the supplier's reply accepting it. An invoice comes last and is the supplier's request to be paid for what it has supplied.

What a purchase order should state

No statute says what a purchase order must contain. That is worth noticing, because one does say what an invoice must contain: GOV.UK sets out a required list including a unique identification number, the seller's and the buyer's names and addresses, a clear description of what is being charged for, the supply date, the invoice date, the amounts and any VAT. A purchase order carries no such list, so whatever a business leaves off it is simply missing when a dispute starts. In practice it should carry:

• A unique PO number, quoted back on the delivery note and the supplier invoice.
• The supplier's name and the address the invoice should be sent to.
• A line per item, with the supplier's product code or a specification reference.
• Quantity, agreed unit price and order total, stated exclusive of VAT.
• The delivery address and the required delivery date.
• Payment terms, and the buyer's terms of purchase if they apply.
• The job or project reference the cost belongs to.

That last line is the one project businesses drop and pay for. A PO raised with no job reference lands in overhead, so the job shows a margin it never earned and the loss surfaces at the end of the quarter across everything at once.

When the order becomes a contract

A purchase order on its own is an offer. It becomes a contract when the supplier accepts it, either by saying so or by starting to perform, and from that point the agreed price applies to the goods on that order. A price increase announced afterwards applies to the next order, not to this one. The complication is whose terms govern: if the supplier acknowledges the order on its own standard terms and the buyer then takes delivery without objecting, the supplier's terms can end up applying. Where the buyer's terms matter, say on the face of the order that acceptance is on those terms only, and deal with any acknowledgement that contradicts them before the goods arrive.

Matching before payment

Three-way matching compares the purchase order, the delivery note or goods received note, and the supplier invoice before payment is approved. Ninety units delivered against an order for a hundred, or an invoice priced above the order, then shows up as a variance rather than as an unexplained margin drop three months later. It is the one control that catches a pricing error and a short delivery with the same check.

In Zigaflow a purchase order is raised from the job it belongs to, and the delivery note and supplier invoice are matched back to it on the same record.