What Is a Purchase Order (PO)?
Business Terms
Explained Simply
A PO is the buyer's commitment: it sits between the supplier's quote and the supplier's invoice. The usual order is quote (the price offer), purchase order (the buyer accepts and orders), delivery, then invoice (the supplier asks for payment). Issuing a PO number lets a business control spending before money is committed, and gives the supplier a reference to quote on the invoice. Many larger businesses and government departments ask suppliers to quote the PO number on the invoice before they will process payment. Three-way matching means the accounts payable clerk checks that the PO, the goods received note and the supplier's invoice agree on quantity and price before paying. Remember that a PO is not a tax invoice, so a VAT vendor still needs the supplier's tax invoice to claim input VAT.
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Related Terms
- InvoiceAn invoice is a commercial document issued by a seller to a buyer, detailing the products or services provided, quantities, prices, and payment terms.
- Accounts PayableAccounts payable (also called creditors) is the money a business owes to its suppliers for goods or services received but not yet paid for.
- VAT (Value-Added Tax)VAT is a consumption tax of 15% levied on most goods and services in South Africa, collected by businesses on behalf of SARS.