Definition:
A Purchase Order (PO) is a formal document issued by a buyer to a seller to confirm the purchase of goods or services.
You should create a purchase order before buying from a vendor when you want to clearly specify what you’re ordering, at what price, and under what terms.
When to Create a Purchase Order:
You create a PO before making a purchase, especially when:
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Buying in bulk or large quantities
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Working with a new vendor
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You need written proof of order details
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Internal approval is required before purchase
Example 1: Buying in Bulk
Scenario:
A retail store wants to order 200 units of LED bulbs from a supplier.
Why create a PO?
Because it’s a bulk order, the PO will clearly mention the quantity, unit price, total cost, delivery date, and payment terms. This avoids any confusion later and ensures both buyer and seller are aligned.
Example 2: Working with a New Vendor
Scenario:
A company is ordering a new printer and accessories from a vendor they’ve never worked with before.
Why create a PO?
Since it’s a first-time transaction, a PO ensures all the details (model, quantity, price, delivery timeline) are clearly agreed upon in writing. It builds trust and prevents misunderstandings.