What is a purchase order (PO)?

A purchase order (PO) is a formal document issued by a buyer to a seller, indicating the types, quantities, and agreed prices for products or services. This document serves several critical functions in the procurement process. It provides clarity and detail regarding the transaction, ensuring that both the buyer and seller have a mutual understanding of the terms and conditions of the order. By being a formal request, the PO transforms a mere conversation into a legally binding agreement that can help prevent disputes regarding what was ordered and agreed upon.

In addition to specifying what is being purchased, a purchase order often includes other terms and conditions, such as delivery dates and payment terms, which help streamline the procurement process. This formalization is essential for both accounting and audit purposes, as it allows organizations to maintain accurate records of their purchases and inventory levels.

Other options, such as a verbal agreement, lack the documentation necessary to enforce a contract and could lead to misunderstandings. A logistics tracking number pertains to the shipment process but does not encapsulate the details of the purchase. An invoice generated by suppliers, while related to the transaction, is issued after the fact and reflects what has been supplied, rather than serving as the initial order document. Therefore, the definition of a purchase order is