What Is a Purchase Order? Types, Process, and Templates
What Is a Purchase Order? Types, Process, and Templates
Every business relies on a steady flow of supplies, materials, and services to keep things running. The process for ordering those supplies should be just as reliable.
When your stakeholders need something delivered, they expect a clear way to communicate that need and get it filled. In most cases, that starts with a purchase requisition, followed by a purchase order for the approved price.
But the purchase order is much more than an order form. To fully understand its use cases, it’s important to know exactly what a purchase order is, how the purchase order process works step by step, the four types of purchase orders, and how to create one.
Key takeaways:
- Purchase orders are legally binding agreements that streamline and safeguard business transactions with suppliers.
- Implementing a defined purchase order process ensures accuracy, compliance, and operational efficiency as your organization scales.
- Standard, planned, blanket, and contract purchase orders address distinct procurement scenarios.
- Standardized templates enable consistent creation, tracking, and management of purchase orders.
- Order.co automates PO creation, approvals, payments, and vendor management on one platform, so your purchasing process keeps pace as your organization grows.
Download the free tool: Purchase Order Template
What is a purchase order?
A purchase order (PO) is a legal document between a buyer and a seller to purchase specific quantities and qualities of goods and services. While purchase orders are commonplace in virtually every business, there's a lot more to the purchase order process than filling out a form.
The purchase order represents a specific agreement on total price and terms for a transaction. Once accepted, it becomes a legally binding contract. It obliges the supplier to provide the quantity and quality of goods outlined in the purchase order within an agreed-upon timeline and requires the buyer to pay for them upon receipt.
The specific terms of a purchase order also offer legal protection for both parties, which is why it's worth maintaining a high level of compliance with your supplier purchases.
How does a purchase order work?
In a healthy procurement process, every purchase follows a predictable and traceable workflow. The purchase order is part of the second phase of the procurement cycle, where the details of the deal have already been agreed upon and approved, and the finalized order is submitted.
1. Stakeholder request is approved
In an ideal system, purchasing begins with a purchase order request submitted by a stakeholder who has identified a need. Using the purchase requisition information (sometimes called an intake form), departmental stakeholders route the request through approval workflows and green-light it for fulfillment.
2. Buyer drafts a purchase order
Once approved, the buyer drafts a purchase order outlining the agreed-upon items and terms, including every detail of the order and all the information the supplier needs to complete the sale and delivery.
Purchase orders can be developed and delivered electronically, in which case transaction details can be automatically tracked and used for later spending analysis and reporting.
3. Seller reviews and approves
Once transmitted, the seller reviews the purchase order for any discrepancies and confirms their ability to deliver the correct quantity of specified items within the agreed-upon timeframe. The seller then approves the PO and begins fulfillment. With electronic purchase orders, it's often possible to track fulfillment and delivery details automatically.
4. Order fulfillment and reconciliation
Order fulfillment and reconciliation should follow the terms and timeline in the purchase order. Once delivered, the buyer receives and approves the delivered goods, noting any variance between the purchase order and what actually arrived.
If an order can't be reconciled, the buyer has the option of returning the delivery if the seller can't remedy the issue. Once reconciled, the invoice generated during fulfillment is forwarded to accounts payable for completion.
5. AP issues payment
Accounts payable conducts a second check of the purchase order to confirm its accuracy. Once complete, AP submits payment to the supplier to close out the transaction as part of the broader purchase-to-pay process.
6. Supplier enters evaluation cycle
Payment to the supplier ends the transaction, but in high-performing procurement organizations, it doesn't end the process. Data from each transaction and each supplier is maintained so suppliers can be evaluated, and any variance or exceptions to compliance are noted along the way.
Periodic supplier evaluation builds confidence in pricing terms, reduces third-party risk, and keeps your purchasing process efficient and financially competitive. The evaluation cycle also covers supplier onboarding, offboarding, and general contract management.
Purchase Order Template
A purchase order template creates a repeatable, reliable process for processing and tracking your orders. Take advantage of our easy PO template here.
The difference between purchase orders and invoices
Purchase orders and invoices are both part of the procurement process, but they're different documents with different jobs:
- A purchase order is an agreement to purchase. The buyer sends this to the seller to initiate a purchase.
- An invoice is a request for payment after successful delivery. The supplier sends this to the buyer to initiate payment.
Types of purchase orders
Most people picture a PO as a single document, but there are actually several types, each suited to a specific purpose.
1. Standard
The standard purchase order (SPO) is the one most stakeholders know. It outlines a one-time purchase of a specific item quantity and description, with a definite delivery date and set payment amounts and deadlines. It needs to contain all the information required to complete a transaction before it's sent.
2. Planned
A planned purchase order (PPO) is similar to a standard one in that it specifies quantity, quality, and agreed price. The difference is that it doesn't lock in a specific delivery date.
A buyer planning a future purchase might draft a planned PO and submit it to AP in advance to secure the funds needed, a form of security accountants call an encumbrance. Once the purchase is ready to complete, the encumbrance is released and the funds become available.
3. Blanket
A blanket purchase order (BPO) covers a business's need for a certain item or items on an ongoing basis, cutting down on the repetitive work of writing a new order every time you need one. It outlines the quality and item descriptions without locking in quantity or timeframe.
Standard office supplies like paper, printer ink, and other recurring purchases are often managed this way since it gives you flexibility with a supplier. Many blanket POs include a maximum purchase quantity, since the supplier may not be able to fulfill an unlimited order.
4. Contract
A contract purchase order (CPO) is the least specific type. It establishes that the buyer intends to purchase goods at some point in the future and commits to a certain supplier for the transaction without locking in the specifics. Think of it as a placeholder for a future agreement between the two parties.
How to create a purchase order
A good way to get started is to create a purchase order template for use in your PO system. It can serve for every transaction you complete and speed up your workflow.Â
Use the following sections to build a template for all your purchase orders:
- Header. Include your company's business name, address, the buyer’s name, and contact information. If any issues come up, this helps vendors quickly reach the right person at your business.
- Vendor information. Add the supplier's company name, address, sales rep name, and contact information. Accurate vendor details help your order reach the right party without delays.
- Purchase order information. Include the purchase order number, PO date, vendor ID (if applicable), and other order details, which help you track the order's status and tie a payment to the invoice and purchase requisition.
- Order details. Add line items with specific product details, such as the SKU or item number, quantity, price, and discount, plus the shipping method and delivery date. Comprehensive order details reduce errors and support faster dispute resolution.
- Payment. Outline payment terms and conditions, along with anything else needed to complete payment, such as a billing address, account number, or ACH or wire information. Setting expectations up front helps prevent order delays.
- Notes. Add any other information specific to the order.
Tools to use to create a purchase order
Creating and managing purchase orders isn't a challenge once you have the right tools. Whether you're building a new template from scratch or improving your existing process, these can help:
- Order.co offers a free, customizable purchase order template to standardize your PO creation process and keep your team aligned.
- Canva makes it easy to build clean, professional purchase orders with its library of pre-designed templates.
- Google Docs is a simple, collaborative option for creating, editing, and sharing POs with your team and vendors.
- Google Sheets works well for itemized order details in a table format, with built-in formulas for tracking totals and taxes.
- PDF editors like Adobe Acrobat let you edit, share, and secure PO documents in a professional format.
Purchase order examples
Here's what a few common purchase order types actually look like in practice.
A standard purchase order includes a detailed description of the goods or services being purchased, the quantity and unit price, payment terms, delivery date, and shipping address. is somewhat like a placeholder, establishing a future agreement to be made between the two parties.
A planned purchase order, shown below, is a long-term purchase agreement with a commitment to buy goods or services from a specific vendor over time. Unlike standard POs, planned POs don't specify exact delivery dates up front.
Next is a blanket purchase order, used to set up regular deliveries of goods or services from a single vendor over a set time period.
Finally, a contract purchase order is a long-term agreement between a buyer and seller for ongoing procurement needs, often used for strategic partnerships or large-volume purchases that call for a comprehensive contract.
Purchase Order Template
A purchase order template creates a repeatable, reliable process for processing and tracking your orders. Take advantage of our easy PO template here.
"*" indicates required fields
Purchase order software for modern businesses
As your order volume and vendor list grows, tracking POs by hand turns into a full-time job. Purchase order software gives you one place to create, approve, and pay for every order with visibility into where each one stands at any point.
With Order.co, your purchase requisitions, purchase orders, and vendor payments run through one platform instead of a mix of spreadsheets, email threads, and vendor logins. Curated catalogs make the compliant purchase the easy purchase, so the process fits how your team already buys. That holds true whether you're weighing centralized vs. decentralized purchasing or already running a mix of both.
Order.co's AI also surfaces better-priced vendors at the moment of purchase and flags pricing drift before it turns into a renegotiation problem.
Using the platform, you can:
- Create and transmit purchase orders
- Order through a curated catalog of pre-approved vendors
- Route requests and approvals to the right person automatically
- Access extended Net terms with all of your suppliers
- Manage vendor contracts and relationships in one place
A scalable purchasing process starts with a purchase order system that fits how your team already buys.
Common purchase order mistakes to avoid
Even with a defined process on paper, a handful of recurring mistakes cause friction in purchase order management:
- Skipping or rushing approvals. When approvals take too long, buyers find workarounds, ordering directly from a vendor or paying with a personal card instead of waiting. Approvals are meant to happen before the money is spent. Treating them as a formality erases the audit trail a purchase order is supposed to create.
- Leaving out a clear PO number. Every purchase order needs a unique identifier so buyers and vendors can stay on top of purchase orders through the rest of the procurement and payment process. Without one, matching an invoice to the right order turns into guesswork.
- Letting invoices and purchase orders drift apart. A purchase order authorizes spend before delivery, and an invoice requests payment after fulfillment. When the quantities, pricing, or terms on the invoice don't match the original PO, that's usually the first sign of a bigger problem. Catching these gaps early is one of the fastest ways to reduce manual invoice processing in accounts payable.
- Using the wrong PO type for the job. A standard purchase order works for a one-time buy, but writing a new one every time you reorder the same recurring item creates unnecessary work. A blanket purchase order covers those repeat purchases under one agreement, reducing paperwork without sacrificing visibility.
Order.co checks every order against your catalog and approval rules at the moment it's placed, so accuracy is built in before the invoice even arrives, catching a mismatch before payment goes out instead of after. Schedule a demo to see how it fits your purchasing process.
FAQs about purchase orders
Accuracy and compliance start with defining who can approve what before any money is spent. Route every purchase request through the same approval workflow, tie each purchase order back to its original requisition, and match the purchase order, invoice, and receipt before a vendor gets paid. This is what catches a duplicate charge, a quantity that doesn't match what arrived, or a price that crept up after approval before it turns into a bigger accounting problem.
Supplier evaluation gives you a running record of how each vendor performs after the purchase order closes, measuring factors like on-time delivery, pricing accuracy, and how often an order needs correcting. That record helps you catch a vendor relationship trending in the wrong direction before it costs you a shipment or forces a renegotiation. It also gives you a factual basis for deciding which vendors should get more of your purchasing volume going forward.
Purchase order software generates each PO directly from the approved requisition, so quantities, pricing, and vendor details carry over without anyone retyping them. Because the order already went through approval and catalog checks at the moment it was placed, there's no separate invoice matching step needed to catch a mismatched quantity or price. That catches the kind of error that used to show up only once accounts payable started reconciling the books at month's end.
Get started
Schedule a demo to see how Order.co can simplify buying for your business.
"*" indicates required fields
