What Is a Purchase Order (PO)?
A purchase order, or PO, is one of the most common business documents you will meet, and one of the least explained for small firms. Most guides are written for corporate buying teams with approval software. The reality for a freelancer, a trades business or a small supplier is simpler: a PO is just a buyer's written order that says "please supply these exact things, at this price, on these terms." Here is what a purchase order is, how the process works, what goes on one, how it differs from an invoice, and the one thing about POs that matters most if cash is tight: that an unpaid order can sometimes be turned into working capital.
What a purchase order actually is
A purchase order is a document the buyer creates and sends to the seller to order goods or services. It lists what is wanted, how many, at what price, and when and where to deliver, and it carries a unique PO number so both sides can track it. Once the seller accepts it, a PO generally forms a binding agreement on the terms written down: the buyer has committed to buy, and the seller to supply. Whether and how strongly it binds depends on your country, on any quote or master agreement already in place, and on either side's standard terms, so read those before you accept. This article is general business information, not legal advice.
The key thing to hold onto is direction. A purchase order flows from buyer to seller, before anything is delivered. That is the opposite of an invoice, which flows from seller to buyer after delivery to ask for payment. If you only remember one line, remember that: the buyer raises the PO, the seller raises the invoice.
You will see a PO used two ways depending on which side of the deal you are on. As a buyer, you raise POs to your suppliers to order stock or services and keep spending on record. As a seller, you receive a PO from a customer, usually a larger or more formal one, as their official authority to go ahead. Many small suppliers meet POs for the first time when a corporate or government client says "we will raise a PO" before they will pay anything.
How the purchase order process works
The full corporate version has a lot of steps, but the underlying flow is the same whether it runs on software or on email. In order:
- A need is identified. Someone decides they need goods or services, internally this is sometimes a purchase requisition.
- The PO is created and numbered. The buyer drafts the order with items, quantities, price and delivery terms, and assigns a unique PO number.
- It is approved and sent. In a bigger organisation a manager signs it off against budget first. Then it goes to the supplier.
- The supplier accepts. The seller confirms they can supply on those terms, or asks to amend them. Acceptance is what turns the PO into a binding order.
- Goods or services are delivered. The supplier fulfils the order, often quoting the PO number on the delivery note.
- Everything is matched. The buyer checks what arrived against the PO. Larger firms do a three-way match, comparing the PO, the delivery or receiving record, and the invoice, so they only pay for what was ordered and actually received.
- The invoice is paid and the PO is closed. The supplier invoices (quoting the PO number), the invoice is approved against the match, and payment is made.
For a small supplier, your job in that chain is simple and worth getting right: when a customer gives you a PO number, put it on your delivery note and your invoice. A missing or wrong PO number is a common reason an otherwise valid invoice sits unpaid in a big company's system, because their finance team cannot match it to anything.
The PO number: the detail that gets you paid
The PO number deserves its own moment, because for a small supplier it is the single most practical thing to get right. It is the reference a buyer's finance system matches everything against, so a quote, delivery note and invoice that all carry the same PO number sail through, while one that is missing or wrong gets stuck.
Two situations trip people up. First, if a client says "we will raise a PO" but has not sent you the number yet, do not invoice until you have it, or your invoice may be rejected on arrival. A quick "could you send the PO number so I can reference it on the invoice?" saves weeks. Second, if you raise your own POs, number them in a simple, unbroken sequence (PO-2026-0001, PO-2026-0002) so you and your suppliers can always trace one back. The UK government's guidance on invoicing and taking payment notes that a customer's reference such as a PO number belongs on the invoice, which is exactly why matching it matters.
What to put on a purchase order
A workable PO does not need special software. These are the fields that matter:
- The word "Purchase Order" and a unique PO number. The number is what everything else is matched against, so it is not optional.
- Buyer and supplier details. Names, addresses and contacts for both sides.
- The order date and the delivery date or deadline.
- Line items. A clear description of each product or service, the quantity, the unit price and the line total.
- Totals, including any tax and the currency, which matters the moment you order across a border.
- Delivery address and terms, plus payment terms (for example, payment within 30 days of invoice).
- Any reference the supplier should quote back, such as a project name.
If you raise orders to your own suppliers, you can create a clean, numbered PO in any currency with Remit's free purchase order generator and download a branded PDF, so your orders and the invoices that follow line up neatly.
Purchase order vs invoice vs quote
These three get mixed up constantly because they describe the same deal at different moments. A quote is the seller's offer of a price, sent before anything is agreed. A purchase order is the buyer's formal order placed against that price. An invoice is the seller's request for payment, sent after the work or goods are delivered. Quote, then PO, then delivery, then invoice.
| Document | Who issues it | When | Purpose |
|---|---|---|---|
| Quote | Seller | Before the deal | Offers a price |
| Purchase order | Buyer | To place the order | Commits to buy at that price |
| Invoice | Seller | After delivery | Requests payment |
Because the distinction trips people up so often, we cover it in full in the guide on purchase order vs invoice, which is worth reading if you are setting up your paperwork for the first time. The short version: the PO places the order, the invoice asks for payment.
A simple purchase order template
If you need the bones of one right now, this is all a basic PO has to say:
"Purchase Order PO-[number], dated [date]. From [buyer name and address] to [supplier name and address]. Please supply: [item, quantity, unit price, line total for each line]. Subtotal [amount], tax [amount], total [amount] [currency]. Deliver to [address] by [date]. Payment terms: [e.g. within 30 days of invoice]. Please quote this PO number on your delivery note and invoice."
Fill in the brackets, number it in a sequence you can follow (PO-0001, PO-0002), and keep a copy. That is a real, usable purchase order.
Do freelancers and small businesses need POs?
Often you do not raise them yourself for small jobs, a quote accepted by email followed by an invoice is enough. But two situations make POs worth understanding. First, when you sell to larger or public-sector clients, they will frequently require a PO before they can pay you, so being comfortable receiving one and quoting its number removes a common payment delay. Second, when you buy from suppliers regularly, raising your own numbered POs keeps a clean record of what you ordered and makes it easy to check supplier invoices against it.
In short, a PO is less about formality and more about matching: it gives both sides one reference number that ties the order, the delivery and the payment together.
Purchase orders and cash flow: PO financing
There is one angle most PO guides skip, and it matters most exactly where cash is tightest, including for small businesses across Botswana and Southern Africa. A confirmed purchase order from a creditworthy buyer is strong evidence of a sale you have won but not yet been paid for. The problem is timing: you often have to buy materials or stock to fulfil the order before the buyer pays you, and that gap can sink a small firm that is growing faster than its bank balance.
This is where purchase order financing comes in. A lender advances funds, usually a share of your supplier cost rather than the full order value, so you can pay your supplier and deliver, and is repaid when your customer settles the resulting invoice. It tends to suit resellers and distributors moving physical goods on larger confirmed orders, and it rarely fits a pure service freelancer. The lender will also weigh up whether the order can actually be delivered and how reliable your supplier is, because a PO can still be cancelled or amended. It has a real cost too, often quoted as a percentage per month that adds up quickly, so it only makes sense where the margin on the order comfortably covers the fee.
A quick illustration (with made-up numbers): say you win an order for 500 units at 12 each, so 6,000, and your materials cost 4,000, payable before you can deliver. If the buyer pays 60 days after invoice, financing bridges that 4,000 gap. The question is always whether the margin, here 2,000 before other costs, still leaves you ahead once the financing fee is paid. Availability varies by country and lender, so treat it as something to ask your bank or a specialist about rather than assume. In the interest of transparency, Remit's founder works in purchase order financing; Remit itself is a free document tool and this article is not a sales pitch for any lender.
Whether or not you ever finance one, the lesson is the same: treat a PO as a real asset. Get the number right, keep the paperwork clean, and the order moves smoothly from quote to delivery to a paid invoice. This article is general business information, not legal or financial advice.
