What is a purchase order and when do I need one?

A purchase order (PO) is a commercial document issued by a buyer to a seller, indicating the type, quantity, and agreed price for products or services. It serves as a legally binding contract once accepted.

• PO number (unique identifier for tracking)
• Buyer and seller info (name, address, contact)
• Itemized list of goods/services with quantities and unit prices
• Total amount
• Delivery date and location
• Payment terms (Net 30, Net 60, etc.)
• Shipping terms (FOB origin, FOB destination)

PO vs Invoice: A purchase order is sent by the buyer BEFORE goods/services are delivered. An invoice is sent by the seller AFTER delivery, requesting payment. The PO is the order; the invoice is the bill.

When you need a PO:

• Recurring purchases from the same vendor
• Purchases over a certain dollar amount (often $500-$5,000 internal threshold)
• Government, enterprise, or B2B sales (most require POs)
• Inventory management for retail/wholesale businesses
• Audit trail requirements (manufacturing, construction, healthcare)

Benefits: clear documentation prevents disputes, simplifies accounting, enables better cash flow forecasting, creates a paper trail for audits and tax purposes.

For small businesses and freelancers, POs are usually overkill — a signed contract or accepted quote is sufficient. But once you start working with enterprise clients, government agencies, or have multiple departments approving purchases, POs become essential.

Generate a free purchase order template at icontract.pro/purchase-order-template-generator.

Create your own contract in 2 minutes

iContract drafts a custom, legally sound agreement for free. Start drafting →