What is a purchase order?
Published
A purchase order is a document you issue to a supplier specifying what you are buying, in what quantities, at what prices and terms. It is a commitment to the supplier and an internal control - and it creates no expense or payable yet; accounting effect begins with receiving and the bill.
The three-way match
The PO's control value appears at billing time:
Purchase order ← what you ordered, at what priceReceiving note ← what actually arrivedSupplier bill ← what you were chargedAll three agree ← approve and payAny leg differs ← hold and resolve before payment
An example that catches the gap: Al-Waha orders 200 chairs × SAR 145 = 29,000. Receiving: 200 chairs, sound. The bill: 200 × 152 = 30,400.
Without matching, 30,400 gets paid and the difference vanishes. With matching, the SAR 1,400 gap (an unagreed price rise) is caught before payment and a credit note or correction is requested. On a quarter's purchases of SAR 290,800, discrepancies of just 1% are SAR 2,908 - more than the discipline of raising POs costs in the first place.
When it earns its keep
| Case | Raise a PO? |
|---|---|
| Recurring purchases at negotiated prices | Yes - it is the price reference |
| Large amounts or staged delivery | Yes - it is the quantity and schedule reference |
| More than one person buys for the business | Yes - it is approval before commitment |
| Small immediate spends (urgent stationery) | Overhead - a simple limit policy suffices |
Frequently asked questions
Is a PO legally binding?
Once the supplier accepts it, it creates a contractual commitment within its terms. Which is why precision in its lines is not a luxury.
Who approves POs?
Per your permission structure: a threshold the supervisor approves, above it management. A PO with no approval path loses half its control value.
How does it relate to the quotation?
Mirrors: the quotation issues from the seller, the PO from the buyer - and the PO is usually built on an accepted quote, citing its reference.