Proper record-keeping might not fill you with excitement, but it can make all the difference in your business’s success. Whatever the size or focus of your business, if you need to make purchases to operate, then you will need a system for managing those purchases.
In simple terms, a purchase order (PO) is an official form sent by a buyer to a supplier confirming the details of goods or services they wish to purchase. This article will take you through what is involved, what you need to include, and why it is important. We also provide a free downloadable purchase order form for you to adapt and use.
1. What Is a Purchase Order?
A purchase order (PO) is a legally binding document that sets out what a buyer intends to purchase. It should include: quantities of each good or service, the agreed price per unit, payment terms, and delivery timescales and method.
The purpose of the PO is to clarify the agreement you have made with the vendor and act as a formal request for goods or services before an invoice (or bill) is issued. If you have employees it also formalises who is authorised to agree to spending within the company.
When you might need purchase orders: Bulk purchases like office supplies or stock replenishment. Outsourced services like marketing, maintenance and IT support.
2. How is a purchase order different from an invoice?
A purchase order is issued by you, the buyer, to formally request goods or services.
An invoice is issued by the supplier of those goods or services to request payment (generally, but not always, after the goods/services have been delivered).
3. Why Purchase Orders Matter for Small Businesses
Here are the main reasons that a PO system matters for your business. They are pretty important.
- Financial record-keeping: A purchase order system will help you to track spending and manage budgets. It’s a critical part of your accounting system, matching spending agreements with bills paid.
- Dispute prevention: Disputes can and do happen in every business. Having a clear record of any spending agreement up-front will save a huge amount of time and heartache if and when things do not go to plan.
- Cash flow management: literally running out of cash is the number one reason for business failure. Keeping track of spending expectations is essential for tight and efficient cash flow forecasting. You will know when money is expected to leave your account and can plan accordingly.
- Professionalism: Purchase orders are common practice is established companies. Having a system in place will enhance your credibility as a serious outfit.
- Audit readiness: A purchase order system is essential for limited companies that undergo formal audits.
4. Key Elements of a Purchase Order
This is the minimum list of details that you need to include in every purchase order. The main thing is that it provides crystal clear details of your expectations.
- Purchase Order Number (PO Number) – every form should have a unique, sequential number.
- Buyer and Supplier Information – For both yourself and the supplier, include the company names, addresses, and contact details.
- Order and Delivery Dates – include both the date that the order is placed and when delivery of the goods and services is expected. This can include numerous dates for clearly defined stages of delivery and associated staged payments.
- Item Descriptions – provide a concise description of the products or services being ordered.
- Quantities and Unit Prices – how many units and what price per unit. This should be in the agreed currency.
- Total Amount – including VAT if applicable.
- Payment Terms – clarify your payment terms here. For example, Net 30 days or Payment due on receipt.
- Delivery Address – this may be different from your business address. Make sure that is crystal clear. If necessary, include any particular delivery instructions.
- Authorised Signature or Approval – This should correlate with your internal spending policy.
5. How to Create a Purchase Order
If you want to create and manage your own PO system, here is a step-by-step guide to what to do.
- Start with a template in Word, Excel, or Google Sheets.
- Add your business logo and contact details.
- Assign sequential PO numbers (e.g., PO-0001, PO-0002).
- Include VAT where relevant (20% standard rate).
- Send electronically (PDF format) for quick confirmation.
- Keep a copy in your records for at least six years (per HMRC guidelines). Store issued purchase orders in a clear folder in your computer system, by month or financial year.
6. Tips for Managing Purchase Orders
To get the best out of your PO system, you might want to consider using cloud accounting software such as Xero, QuickBooks, or Sage. Those systems have PO ordering integrated into the software.
However, accounting software is not essential. You can manage a PO system perfectly well by using a template and a spreadsheet. Just make sure that you:
- Match each PO with the corresponding invoice for reconciliation.
- Maintain a consistent numbering and filing system.
- Regularly review supplier performance and pricing.
7. Digital Tools to Manage your Purchase Orders
There is no end to the digital tools that you can use to streamline your business processes. Here are some of the main categories to consider, based on the size and stage of your business.
Accounting-focused tools – Xero, QuickBooks, and Sage are ideal for small businesses that want to link purchase orders directly to invoices and financial reports.
Inventory management systems – Unleashed, Katana, and Brightpearl can automatically create purchase orders when stock levels fall below a set threshold.
Custom automation platforms – Zapier and Microsoft Power Automate help you to design workflows such as automatic PO approvals or email notifications for high-value orders.
Tip: Choose a tool that integrates easily with your existing systems, supports your current processes, and can scale as your business grows.
8. Free UK Purchase Order Template (Download & Customise)
Word version: UK_Purchase_Order_Template
Excel version: UK_Purchase_Order_Template
[Your Company Name]
Address: [Street, Town/City, Postcode]
Telephone: [Telephone Number]
Email: [Email Address]
Company Number (if applicable): [#######]
VAT Registration No. (if applicable): [GB########]
Purchase Order (PO)
PO Number: [####]
Date: [DD/MM/YYYY]
| Supplier Information | Buyer Information |
| Supplier Name: | Buyer Name: |
| Company: | Company: |
| Address: | Address: |
| Email: | Email: |
| Telephone: | Telephone: |
Order Details
| Item Description | Quantity | Unit Price (£) | Total (£) |
| Subtotal | £0.00 | ||
| VAT (20%) | £0.00 | ||
| Delivery/Shipping | £0.00 | ||
| Grand Total | £0.00 |
Payment Terms: [e.g., Net 30 days from invoice date]
Delivery Date: [DD/MM/YYYY]
Delivery Address: [Address and Postcode]
Authorised By: ________________________
Signature: ____________________________