A purchase order is the document that turns an informal agreement into something both sides can rely on. It specifies exactly what's being bought, at what price, and on what terms, before the seller ships anything or raises an invoice.
What a Purchase Order Actually Does
A PO is a formal document issued by a buyer to a seller specifying the goods or services required, quantities, agreed prices, delivery terms, and payment terms. Once the seller accepts it, it functions as a binding contract, giving both sides a clear reference point if there's a dispute later about what was actually agreed.
Three-Way Matching: Why Larger Buyers Insist on a PO Number
Three-way matching is an accounts payable control where the purchase order, the goods receipt note (confirming what actually arrived), and the vendor's invoice are compared before payment is approved. This catches duplicate billing, incorrect quantities, and fraudulent invoices before money leaves the business. If you supply to larger companies, expect them to require your GST invoice to quote their PO number specifically so their system can match it automatically.
Does a Purchase Order Need to Mention GST?
A PO isn't a tax document and doesn't itself charge GST, actual GST is determined and charged at the invoice stage. It's still good practice to mention the expected GST rate on the PO for budgeting purposes, so there's no confusion later about whether the quoted price was inclusive or exclusive of tax.
Common Payment Terms to Specify Clearly
- Net 30 / Net 60: payment due within 30 or 60 days of the invoice date
- 50% advance, 50% on delivery: common for custom or large-value orders
- Cash on Delivery (COD): payment at the point goods are received
- Letter of Credit: typically for larger international orders, adding a bank guarantee to the transaction
Whatever terms you agree on, state them explicitly on the PO itself, vague or missing payment terms are one of the most common sources of disputes between buyers and vendors.
How to Use Our Free Tool
- Enter your company and the vendor's details.
- Add a unique PO number and date, this is the reference number the vendor should quote on their invoice.
- List every item with quantity, unit, and agreed rate.
- Specify payment and delivery terms clearly, then download the PDF, ready to send.
Frequently Asked Questions
Is a PO number mandatory on a GST invoice?
Not mandatory under GST law, but strongly recommended for B2B transactions, particularly with larger buyers who use three-way matching in their accounts payable process.
What is three-way matching?
Comparing the purchase order, the goods receipt note, and the vendor's invoice before approving payment, a standard control to prevent duplicate or incorrect payments.
Is a purchase order legally binding?
Yes, once the seller accepts it, a purchase order functions as a binding contract specifying the agreed goods, price, and terms, similar to any other commercial agreement.
Create a professional purchase order free with the Purchase Order Generator.
