Purchase order basics come down to one idea: a purchase order, or PO, is your written request to buy, with the price and terms agreed before the work starts. It is not a bill. It is the paper that says what you want, how much you will pay and when you expect it. This guide shows what goes on a PO and how to check it against the quote and the invoice before you pay.
What a purchase order is
A PO goes from the buyer to the seller. It lists the goods or services you want, the quantity and the agreed price. Most POs also state payment terms and shipping instructions.
A PO does not make a contract on its own. If there was no earlier contract, the contract usually forms when the seller accepts your order. Sellers often attach their own terms when they accept, so read the reply, not only your own PO.
For a small business, the PO does a simple job. It proves you asked for the goods. It also stops a supplier from sending a different order and billing you for it.
What to put on a purchase order
Keep the form short. Each line should answer a plain question.
- PO number. A unique number such as PO-0042. Every later document should repeat it.
- Date. The day you issue the order.
- Buyer and seller. Legal names, addresses and a contact person for each.
- Items. A clear description, the item code if there is one, and the quantity.
- Price. The unit price and the total, with tax shown as its own line.
- Delivery. The address, the due date and who pays for shipping.
- Payment terms. For example, pay within 30 days of a correct invoice.
- Approval. The name of the person who signed it off.
Do not leave blanks. A blank price or date is where most disputes begin.
Quote, purchase order and invoice: the difference
These three papers come in order, and each has its own job.
- A quote comes from the seller. It says what they would charge. It is an offer, and you can still say no.
- A purchase order comes from you. It says what you want to buy at the quoted price.
- An invoice comes from the seller after delivery. It asks you to pay.
The price should not change as it moves along this chain. If the invoice shows a higher price than the PO, something went wrong, and you should ask why before you pay.
What a valid invoice should show
If your supplier is registered for GST in Singapore, check the invoice itself as well as its total. The tax authority, IRAS, says a tax invoice for a GST-registered customer must carry the words "Tax Invoice" in a prominent place. It must also show the supplier's name, address and GST registration number, the date of issue and an invoice number. It must show the customer's name and address, a description of the goods or services, the GST rate, the amount before GST, the GST amount and the total amount payable.
IRAS also allows a simplified tax invoice when the total payable, with GST, is S$1,000 or less. It needs fewer details. Other countries have their own rules, so ask your supplier or your tax adviser what applies where you buy.
An invoice with missing details can cause trouble later, for example when you try to claim GST back. Ask the supplier to fix it before you pay, not after.
Match all three before you pay
Finance teams call this a three-way match. It takes five minutes and catches most mistakes.
- Find the PO number on the invoice. No number, no payment, until the supplier adds it.
- Compare the items and prices on the invoice with the PO.
- Check that the goods or the work actually arrived. Look at the delivery note or ask the person who received them.
- Compare the quantity received with the quantity billed. Pay only for what came.
- Check the tax line and the supplier's bank details against your records.
If anything does not match, write to the supplier and keep the reply. Pay the undisputed part if your terms allow it. Some companies follow a "no PO, no pay" rule, so that an invoice without an approved PO is not paid. It is a simple habit that small firms can copy.
Simple habits that keep POs useful
Number your POs in order and keep one folder for each supplier. Let one person approve every order, and let a different person approve payment. Send the PO before work starts, not after. If the price changes, issue a changed PO instead of agreeing by chat. Small firms that do these things find disputes are rare and short.
A PO is only as good as the habit of using it. Start with the next order you place.