A purchase order is the written order a business sends a supplier before goods arrive. What a PO is, what goes in one, and how it is created, step by step.
A hardware store is running low on cement. The owner rings the usual distributor: "Send forty bags, same as last time." The bags arrive a week later — thirty-five of them, at a rate nobody remembers agreeing to, with a bill for forty.
A purchase order exists to stop exactly that. A purchase order (PO) is a written document a buyer sends to a supplier, listing what they want to buy, how much of it, at what price and by when. It is the order in writing, made before the goods arrive, so that both sides agree on the deal up front and can check the delivery and the bill against it later.
What is a purchase order?
A purchase order is issued by the buyer, not the seller. It says: "We would like to buy these items, on these terms." It carries its own number — the purchase order number, or PO number — so that every later document can point back to it.
A PO is a commitment, not a bill. Sending one does not mean you owe money yet; you owe money once the supplier delivers and sends an invoice. But once the supplier accepts the purchase order, it becomes an agreement both sides are held to: the supplier to deliver what was ordered, the buyer to pay the agreed price for it.
Large companies have used purchase orders for a century (the Wikipedia article on purchase orders covers the history), but they matter just as much to a single shop. The smaller the business, the less room there is for a disputed bill.
Why businesses use purchase orders
- No disputes about what was ordered. The quantity, the rate and the delivery date are written down before anything ships.
- Control over spending. A PO can need approval before it goes out, so nobody commits the business to a large purchase on their own.
- A clear view of what is coming. Open purchase orders tell you which stock is already on its way, so you do not reorder it twice.
- A bill you can check. When the supplier invoice arrives, you compare it to the PO instead of trusting it.
- An audit trail. Every purchase can be traced from the order to the delivery to the payment — useful for your accountant, your auditor and the tax department.
What goes in a purchase order
A purchase order format varies from business to business, but almost every PO carries the same fields:
- PO number and date — a unique number for each order, so it can be referred to on the delivery note and the invoice.
- Buyer details — your business name, billing address and, in India, your GSTIN.
- Supplier details — the vendor's name, address and GSTIN.
- Delivery address — where the goods should go, if it is a warehouse or a different outlet.
- Items — a description of each item, with its code (SKU) and HSN code.
- Quantity and unit — 40 bags, 50 pieces, 12 boxes of 10.
- Rate and discount — the agreed price per unit and any discount on it.
- Taxes — the GST expected on each line (CGST and SGST within a state, IGST across states).
- Total — the order value before and after tax.
- Delivery date — when you expect the goods.
- Payment terms — for example, "30 days from invoice" or "advance on order".
- Approval — who authorised the purchase, with a signature or digital approval.
A sample purchase order
Here is a simple PO from that hardware store to its distributor, in the same state, so the GST splits into CGST and SGST. The rates are illustrative, and GST rates change, so always check the current rate for each HSN code on the CBIC GST portal.
| # | Item | HSN | Qty | Rate | Amount |
|---|---|---|---|---|---|
| 1 | Cement, 50 kg bag | 2523 | 40 bags | ₹380.00 | ₹15,200.00 |
| 2 | PVC pipe, 1 inch, 3 m | 3917 | 50 pcs | ₹180.00 | ₹9,000.00 |
| 3 | Brass ball valve, 1 inch | 8481 | 20 pcs | ₹450.00 | ₹9,000.00 |
Payment terms30 days from the date of invoice
NotesPlease quote PO-2026-0142 on your delivery challan and invoice. Short or damaged items will be recorded on the goods receipt note.
- Taxable value
- ₹33,200.00
- CGST @ 9%
- ₹2,988.00
- SGST @ 9%
- ₹2,988.00
- PO total
- ₹39,176.00
How a purchase order is created, step by step
The purchase order process looks the same in a three-person shop and a large distributor. The difference is only how much of it is written down.
- Someone notices a need. Stock is running low, or a new item is wanted. In bigger businesses this is written up as a purchase requisition — an internal request to buy.
- Get a price. You ask one or more suppliers for a quotation, or use the rate you agreed last time.
- Approve the purchase. The owner or a manager checks the need and the price. Many businesses only require approval above a certain amount.
- Raise the purchase order. The PO is created with a new PO number, the supplier, the items, the quantities, the rates, the taxes and the delivery date.
- Send it to the supplier — by email, on WhatsApp, on paper or straight from your software.
- The supplier accepts. They confirm they can deliver on those terms, or come back with changes, in which case the PO is revised before anything ships.
- Receive the goods. When the delivery arrives, staff count what actually came and record it on a goods receipt note (GRN). Short or damaged items are noted then, not discovered weeks later.
- Receive the invoice. The supplier sends a bill quoting your PO number.
- Match and pay. You check the PO, the GRN and the invoice against each other — called three-way matching — and pay for what was ordered and actually received.
In the example above, the store would have received thirty-five bags against an order for forty. The GRN shows thirty-five, the invoice says forty, and the three-way match catches the difference before any money goes out.
Purchase order vs invoice vs goods receipt note
These three documents are often confused, because they describe the same purchase. Each records a different moment in it.
Purchase order | Goods receipt note (GRN) | Invoice | |
|---|---|---|---|
Who makes it | The buyer | The buyer, on delivery | The supplier |
When | Before the goods ship | When the goods arrive | After, or with, the delivery |
What it says | What we want to buy, and on what terms | What actually arrived | What we are asking you to pay |
What it is for | Agreeing the order | Proving the delivery | Requesting payment and claiming tax |
In short: the purchase order is the request, the GRN is the proof of delivery and the invoice is the bill. A purchase order is not a tax invoice, and you cannot claim input tax credit on a PO — only on the supplier's invoice.
Types of purchase orders
- Standard purchase order — a one-off order for specific items, quantities, prices and a delivery date. Most purchase orders are this kind.
- Planned purchase order — the items and prices are fixed, but the delivery dates are tentative; you release each delivery when you need it.
- Blanket purchase order — an agreement to buy a range of items from a supplier over a period, at set prices, with the exact quantities called off as you go.
- Contract purchase order — a framework of terms (payment, delivery, pricing) agreed with a supplier, under which separate standard POs are raised later.
Common purchase order mistakes
- Ordering on the phone and writing nothing down. A verbal order leaves nothing to check the delivery or the bill against.
- Invoices without a PO number. Ask suppliers to quote your PO number on every invoice; otherwise matching becomes guesswork.
- Receiving without counting. Signing for a delivery without checking it against the PO means accepting whatever came.
- Changing a PO after it has gone out. If the order changes, send a revised PO so both sides work from the same version.
- Ignoring open orders. A PO that was never delivered, or only partly delivered, should be followed up or closed — not forgotten.
Paper, spreadsheet or purchase order software?
A notebook or a spreadsheet works for a handful of suppliers. It stops working when there are several people ordering, more than one outlet, or deliveries that arrive in parts. That is when POs go missing, numbers repeat, and nobody is sure whether the second half of an order ever came.
Purchase order software keeps the whole chain in one place: the PO, what was received against it, the supplier bill and the payment. In VAP's purchasing, you raise a purchase order to a supplier, receive against it line by line — recording what actually came — and the received goods go straight into inventory at the outlet or warehouse that received them.
Because purchases and sales share one set of books, supplier bills and payments sit alongside your sales in invoicing, and the GST on purchases is in the same records as the GST on sales for GST billing. A pharmacy captures batch numbers and expiry dates at the dock, which then drive FEFO picking; a hardware store receives in bags, pieces and metres. Roles and permissions decide who may raise a PO and who may approve one.
Purchase order FAQs
Is a purchase order legally binding?
Once the supplier accepts it, yes. The PO is the buyer's offer, and the supplier's acceptance — in writing, or by delivering the goods — turns it into an agreement on those terms. Until it is accepted, the buyer can usually withdraw it.
Who prepares a purchase order?
The buyer. In a small business that is often the owner or the store manager; in a larger one, a purchasing team, after the purchase has been approved.
Can a purchase order be cancelled?
Yes, before the supplier has accepted or shipped it, freely. After acceptance, cancelling depends on the terms you agreed, so it is best done in writing and with the supplier's agreement.
Does a purchase order need GST?
A PO is not a tax invoice, so no GST is charged on the PO itself. It usually shows the GST expected on each line, so the total matches the invoice. The tax is charged on the supplier's invoice — which, above a turnover threshold, must be an e-invoice registered on the GST e-invoice portal.
What is the difference between a purchase order and a purchase requisition?
A purchase requisition is internal: a member of staff asking their own business to buy something. A purchase order is external: the business placing the order with a supplier, once the requisition is approved.
Want to see the whole chain — order, receipt, bill and stock — in one place? Take a look at VAP, or talk to us about how it would fit the way you buy.