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.
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%.
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.
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 |
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.
There are four types of purchase orders you might use for your business:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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:
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:
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:
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.
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.
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.
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.
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.
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.
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.
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.
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.
The four types of purchase orders are:
