It’s tempting to order inventory in advance just in case you sell out. But businesses are sitting on $1.40 worth of inventory for every dollar in sales—a type of oversupply that can happen for many reasons. One of them is losing track of orders you’ve made to suppliers, leaving you with high inventory levels and storage costs to match.
Creating and tracking purchase orders is one way to reduce this problem. A good purchase order system makes it easier to forecast demand and order future stock, improve cash flow, and prevent any order errors that arise throughout the buying process.
Read on to learn what a purchase order is and how to create one for goods and services you buy, with a free template to get you started.
What is a purchase order (PO)?
A purchase order (PO) is an official document in which your business commits to purchase goods from a supplier or vendor. It includes names of both the buyer (your store) and the vendor, company information, and the quantities of products being purchased.
Purchase orders are issued from a PO management system that syncs with inventory, finance, and supplier portals. Businesses can get real-time information about inbound stock keeping unit (SKU) counts and committed spend, which is important when 58% of brands admit their inventory accuracy is below 80%.
Is a PO legally binding?
A PO becomes a legally binding contract once it’s accepted by the seller. You’re officially committed to pay that vendor for the goods outlined in the purchase order under the Uniform Commercial Code.
Purchase order vs. purchase requisition vs. invoice
A purchase order is often confused with a purchase requisition or an invoice. All three are documents you’ll encounter when buying and selling goods, but their purpose differs:
| Purchase requisition | Purchase order | Invoice | |
|---|---|---|---|
| Definition | An internal request to buy a product or service | A document issued to show intent to buy goods or services | A bill sent to request payment for an order |
| Initiated by | Internal employee | Buyer | Supplier or vendor |
| Recipient | Internal stakeholder (e.g., finance managers) | Supplier or vendor | Buyer |
| Timing | Created before a purchase order | Sent after purchase requisition approval | Sent after the order is delivered |
What is 3-way matching and why it matters
Procurement teams use three-way matching to verify that any products or services bought by a company went through the approval process. This process matches the purchase order with the requisition form and goods receipt. If all three match, the payment is approved.
If there’s a discrepancy between any of these three documents, the order gets flagged for review. This helps catch any duplicate orders, overpayments, or incorrect products and quantities.
Types of purchase orders (and when to use them)
There are four types of purchase orders you might use for your business:
- Standard. Standard POs are used for one-time purchases. They only include basic order details, such as the price, quantity, and delivery terms of your order. You might opt for this when you’re buying one load of inventory for a new product launch.
- Blanket or standing. Blanket POs are used when you’re making a recurring purchase but can’t commit to exact quantities or details. For example, if you were buying shipping materials from a supplier, you might opt for a standing PO to adjust quantities each quarter based on how many orders you plan to fulfill.
- Planned. A planned PO shows your commitment to buy products before finalizing the details. For example, if you know you plan to stock t-shirts in the summer but aren’t sure about styles or how many you’ll need, you might opt for a planned purchase order to get on your supplier’s radar before their availability is taken.
- Contract. A contract PO establishes details for long-term purchasing agreements. They’re used to lock in discounted rates. Wholesalers, for example, might offer bulk pricing when you sign a 12-month contract PO.
Steps in the purchase order process
1. Identify need and raise a requisition
A team flags the need for new inventory or services and submits a purchase requisition with SKU/part numbers, quantities, and budget code. Adding a required-by due date and a short business case speeds managerial approval from the procurement department.
2. Draft and approve the purchase order
Procurement converts the approved requisition into a formal PO that specifies items, agreed upon prices, expected delivery dates, and payment terms. They double-check tax codes and general ledger (GL) accounts so the PO can move through finance smoothly.
3. Send the PO to the supplier
Transmit the PO electronically (electronic data interchange, supplier portal, or email) to create a verifiable audit trail. Ask the vendor to acknowledge or reject the order within 24 hours. This is known as PO acknowledgment.
4. Supplier confirmation or rejection
The seller accepts the PO as is or flags quantity, price, or lead-time issues for rapid resolution. Capture the confirmation in your order management system (OMS) so downstream teams see the final, agreed-upon terms.
5. Fulfillment, packing slip, and shipment
The supplier manufactures or picks the order, creates a packing slip that mirrors the PO, and ships with the PO number on the label. Enable automatic status updates so you can track in-transit milestones and pre-book receiving staff.
6. Goods receipt and inspection
On arrival, warehouse staff verify items and quantities against the PO and packing slip, recording any shortages or damage. Posting the goods-receipt entry immediately updates inventory balances and triggers three-way matching.
7. Invoice matching and approval
The supplier converts the fulfilled PO into an invoice; the accounts payable system performs a three-way match against the PO and goods-receipt record. Clean invoices auto-approve, while exceptions route to buyers for rapid resolution.
8. Payment and record keeping
Finance schedules payment per negotiated terms, taking early-pay discounts when cash allows. At this point, you close the PO and the settlement is logged in the enterprise resource planning system and supplier scorecard, closing the loop for audit and performance reviews.
Why purchase order management matters in 2026
Control spending and prevent unauthorized purchases
A well-governed PO workflow blocks unbudgeted, off-contract orders that cut into negotiated savings. In the 2025 ProcureCon CPO Report, 64% of procurement leaders said rogue spend decreased over the previous 12 months after tightening approval rules.
For example, AstraZeneca rolled out Coupa P2P across 11 markets, taking PO-to-approval time from three days to 1.5 days and invoice approval from 60 days to 4.5 days, giving finance visibility into every transaction.
Improve communication with suppliers
Supplier portals that show live PO status stop the back and forth emails and Slack messages. Real-time updates let vendors make self-serve changes, shorten lead time, and keep everyone aligned on dates and deliverables.
A recent study found that top-performing organizations process POs in less than five hours, while the worst-performing organizations take more than 48 hours.
Streamline procurement processes
Automation slashes touch-time on every PO. Manufacturers that digitize approvals can save on procurement costs and reduce processing time, which allows buyers to spend less time on paperwork and more time on building supplier relationships.
Purchase order example + free template
Here’s an example of what a digital purchase order might look like for a retail store. The document outlines the vendor’s information (including their shipping address), the items being ordered, the quantities, and the shipping terms.
💡Tip: Remember to give each PO its own unique identifier. Opt for a numbering system or match them to your supplier, like “VENDOR-Q1-26”, for easy reference. If you make any changes to the PO, you might need to adjust the purchase order number to create an audit trail.
Use a free purchase order template
Need help creating your own PO? Use Shopify’s free purchase order template. Enter the required information—including your store address, vendor company information, and items ordered—to get an electronic purchase order template sent directly to your email address, ready to forward to vendors.
PO management software
Shopify
With Shopify, you get purchase orders, inventory receipts, and supplier records in the same admin you use to run your store. No extra apps, APIs, or training. Ecommerce brands needing an integrated PO workflow that syncs with inventory management can leverage Shopify’s features here.
Other features include:
- Draft, issue, and edit POs inside the Shopify admin
- Convert POs to PDF in one click for suppliers
- Receive inventory against the PO to auto-update on-hand stock across every location
- The supplier directory lives in the “Select supplier” dropdown—one record feeds every future PO
- Sort and filter open documents by PO creation date, expected arrival, vendor, location, or status
Coupa
Coupa is a suitable option for enterprises or high-growth organizations that manage thousands of purchase orders (POs) across multiple business units and require in-depth analytics. It centralizes every dollar spent, then uses AI to highlight savings, flag risk, and streamline approvals.
Top features include:
- End-to-end procure-to-order suite with guided buying, AI spend analysis, and real-time PO tracking
- Built-in supplier-risk scoring, contract life cycle management, and AP automation
- 2025 “agentic AI” release (Navi AI) offers faster data analysis and suggests corrective actions automatically
NetSuite
NetSuite brings requisitions, POs, inventory, and AP together into one database. Organizations that already use NetSuite ERP, or plan to in the future, can benefit from NetSuite’s purchase management feature.
Features you’ll get include:
- Converts purchase requisitions to POs automatically, applies formal contract pricing, and tracks special orders or drop shipments
- Flexible approval workflows (simple dollar limits or multistep SuiteFlow) plus built-in reminders prevent bottlenecks
- Vendor portal lets suppliers check PO status and delivery dates, reducing email back-and-forth
Best practices to scale your PO workflow
Standardize templates and coding (SKU/GL/Incoterms)
Lock down reusable templates for purchase requisitions and POs so every buyer captures the same fields, like SKU, GL code, Incoterms, and expected arrival.
Procurement teams that formalize templates slash PO cycle time compared with peers, according to APQC’s 2025 benchmarking of top-quartile performers.
Approval workflows and dollar thresholds
Build dollar-based approval tiers and route purchase order requests through automated alerts rather than ad-hoc emails. You can speed up sign-off, prevent “shadow buying,” and leave an audit trail for finance and compliance.
Supplier confirmation and portal hygiene
Score vendors monthly on delivery accuracy, lead-time reliability, and defect rate so issues surface before the next reorder. A Deposco survey found that 58% of companies missed delivery or accuracy targets during peak season—proof that real metrics beat assumptions.
Ditch spreadsheets: create/track POs in system
There are various ways to track purchase orders. Excel spreadsheets are often the first choice for businesses just getting used to them. The only problem? They’re clunky, confusing, and get inaccurate fast—especially if you forget to update the spreadsheet once a PO has been issued, approved, or converted into an invoice.
Ditch the spreadsheets in favor of a PO management system. Apps like Stocky sync with your Shopify store so you can create and track POs from your back office.
Upload company information for each vendor you’re working with. When you need to create a new PO, select the vendor. Stocky will create a PO with prefilled contact information.
💡 PRO TIP: Having trouble knowing how much stock to order from a vendor? Merchants using Shopify POS can use Stocky’s demand forecasting feature, which uses historical sales data to suggest which products and quantities to reorder.
Are purchase orders right for your retail business?
Purchase orders help you track incoming orders, commit to stock further in advance, and prevent order discrepancies. They also provide legal documentation should something go wrong in your purchasing process.
Determine the type of PO you need for your business, then use a purchase order system like Stocky to create them. It’ll make scaling your retail store easier and contribute to balanced inventory levels.
Purchase orders FAQ
Who issues purchase orders?
The buyer is responsible for issuing purchase orders. If you’re ordering inventory for your retail store, for example, it’s your job to create the purchase order. If you’re fulfilling an order for another business, it’s their job to issue a purchase order.
Who approves purchase orders?
The vendor—be that a manufacturer, contractor, or otherwise—is responsible for approving purchase orders. If you’ve issued a purchase order for the inventory you’re ordering from a vendor, for example, it’s their job to approve it.
What is the difference between purchase order and invoice?
A purchase order is a formal agreement that details a buyer’s intention to purchase a product or service from a supplier. An invoice is sent by the supplier as a formal request for payment once the order has been fulfilled.
What is the purpose of the purchase order?
The purpose of a purchase order is to show your commitment to purchase a product or service. It’s a legally binding document that includes order details—including agreed pricing, quantities, and delivery details—that both parties must stick to.
What are the 4 types of purchase orders?
The four types of purchase orders are:
- Standard purchase orders
- Blanket purchase orders
- Standing purchase orders
- Contract purchase orders
