Purchase Order Meaning
A purchase order is a formal document that shows a buyer wants to buy goods or services from a seller. It clearly explains what the buyer wants, how many items they need, how much they will pay, and how the seller should deliver the order. When the seller agrees to the terms, the purchase order becomes a legal contract.
Below are the main things that explain the meaning of a purchase order and how it works in business:
- It’s a written request to a supplier: The buyer sends a document with full order details, not just a quick message or phone call.
- It clearly shows what the buyer wants: The PO lists the products or services, quantity, agreed price, and delivery instructions.
- It comes before the invoice or payment: The PO is sent first to approve the order before anything is delivered or billed.
- It becomes a legal agreement once accepted: When the seller confirms the order, both sides are required to follow the PO terms.
- It’s used to keep track of spending and approvals: Purchase orders help teams follow budgets and make sure nothing is bought without approval.
In simple terms, a purchase order is proof that someone placed an order under agreed terms. It helps both the buyer and seller stay aligned and avoid miscommunication during the purchasing process.
What is a Construction Purchase Order?
A construction purchase order is a document used to buy materials, tools, or services for a construction project. It helps project teams make clear requests to vendors and track everything that’s been ordered.
Here are common ways construction teams use purchase orders to manage project needs and control spending:
- To order construction materials: Project managers use POs to request items like concrete, bricks, tiles, or steel for a specific site.
- To hire subcontracted services: Construction companies issue POs when they need help from outside trades like electricians, plumbers, or machine operators.
- To schedule equipment deliveries: POs help confirm the drop-off date, time, and location for tools, machines, or rented equipment.
- To manage site budgets: Every PO is connected to a project code or job cost, helping finance teams stay within budget.
- To keep vendor communication clear: With a PO, suppliers know exactly what to send, how much to send, and when it’s needed.
Let’s say a site manager needs scaffolding delivered to Site B next Wednesday. They send a purchase order to the supplier listing the quantity, price, and delivery details. This way, there’s no confusion, the order is approved in advance, and the project stays on track without delays.
You can learn more about how to manage budgets and track spending in our project cost management guide.
How Does a Purchase Order Work?
A purchase order works by starting with the buyer creating the document, then getting approval, sending it to the supplier, receiving the items, and ending with payment after invoice matching.
Follow this purchase order process flow to streamline buying and avoid errors.Step 1: The Buyer Creates the Purchase Order
The buyer fills out the purchase order form with the supplier name, items requested, quantity, price, delivery location, and payment terms. This document is saved and prepared for approval.
Step 2: The Purchase Order is Approved Internally
A manager or finance approver checks the details and signs off. The system or workflow marks the PO as approved and ready to send.
Step 3: The Purchase Order is Sent to the Supplier
The approved purchase order is sent to the supplier by email or through a procurement platform. The supplier reads the PO and confirms the order.
Step 4: The Supplier Delivers the Goods or Services
The supplier delivers the goods or performs the service based on the instructions written in the PO. The items are sent to the job site or office listed on the document.
Step 5: The Supplier Sends an Invoice that Matches the PO
After delivery, the supplier issues an invoice with the same details as the PO. The invoice includes the PO number, item list, total cost, and payment terms.
Step 6: The Buyer Reviews and Processes the Invoice for Payment
The buyer checks the invoice, PO, and delivery receipt. If they all match, the finance team approves the invoice and sends payment to the supplier.
What Should Be Included in a Purchase Order?
A purchase order must include specific details such as the PO number, buyer and supplier info, item descriptions, quantity, price, delivery address, payment terms, and approval details.
Here is a table showing the main parts of a complete and clear purchase order:
| Field |
What is it? |
| PO Number |
A unique tracking number for the purchase order |
| Date of Order |
The date the purchase order was created and approved |
| Buyer Information |
The name, company, and contact details of the buyer |
| Supplier Information |
The name and contact details of the vendor or supplier |
| Item Descriptions |
Names and short details of goods or services being ordered |
| Quantity |
The number of items or amount of service needed |
| Unit Price and Total |
Price per item and total amount for each line item |
| Delivery Address |
The exact place where the goods or services must be delivered |
| Expected Delivery Date |
The planned date for delivery or service completion |
| Payment Terms |
Agreed method and schedule for payment, such as net 30 or upon delivery |
| Approval Details |
Name or signature of the person who approved the PO |
Purchase Order Example
This is what a good purchase order example looks like. The PO includes key details such as the buyer and supplier information, project reference, delivery address, item list with quantities and unit prices, payment terms, and a full order summary to show the total cost.
Use this example of a purchase order template to standardize and streamline procurement.When Do You Need to Issue a Purchase Order?
You need to issue a purchase order when you are buying goods or services and want clear approval, tracking, and control over the order. It should be created before the supplier delivers anything or sends an invoice.
You should issue a purchase order in the following situations:
- When buying physical goods like equipment, materials, tools, or supplies
- When ordering services such as repairs, installations, or subcontracted work
- When working with new suppliers that require formal orders
- When tracking project costs using job numbers or cost codes
- When the purchase must be reviewed and approved before spending
- When payment needs to be matched with an invoice and delivery confirmation
For example, a construction company should issue a PO before ordering ready-mix concrete for a site. This helps confirm the quantity, cost, delivery location, and approval before anything is delivered.
Who Prepares, Signs, and Approves a Purchase Order?
The person who prepares a purchase order is usually someone responsible for ordering goods or services, such as a project manager, site engineer, office manager, or procurement officer. The person who approves it is someone with authority to confirm that the purchase is needed and allowed under the budget.
Here is how the roles are divided in a typical purchase order process:
- Prepared by: The person requesting the goods or services, such as a team lead, project manager, or site coordinator.
- Checked by: A procurement team member or accounts department for accuracy and vendor details.
- Approved by: A department head, finance officer, or other authorized person depending on the value or company policy.
- Sent by: Often the same person who prepared it, or a procurement system automatically sends it after approval.
For example, if a project engineer needs safety gear for a site, they may fill out the purchase order. The PO is then reviewed by the procurement team and approved by the project manager before being sent to the supplier.
Why are Purchase Orders Important for Businesses?
Purchase orders are important because they give structure to buying. They help companies control spending, keep clear records, and avoid mistakes during purchasing.
Below are the specific reasons why businesses use purchase orders in their daily operations:
- Track spending clearly: Every PO is linked to a specific amount, department, or project.
- Avoid surprise costs: Suppliers must follow the exact terms written in the PO.
- Prevent payment errors: Invoices are matched with POs to check for differences.
- Support approvals and budgets: Orders are reviewed before anyone buys anything.
- Create a clear record: POs are stored and used for audits, reports, and future checks.
- Improve vendor communication: Everyone is clear about the order from the start.
As businesses grow and handle more projects, purchase orders make daily work easier. They reduce confusion, support teamwork, and help different teams—like finance, procurement, and project management—follow the same ordering steps.
Purchase Order vs Invoice
A purchase order is sent by the buyer to request goods or services, while an invoice is sent by the supplier to request payment after the order is delivered. These two documents are connected, but they serve different roles in the buying process.
Here is a table showing the main differences between a purchase order and an invoice:
| Aspect |
Purchase Order (PO) |
Invoice |
| Who sends it |
Buyer |
Supplier or vendor |
| When it is sent |
Before the order is delivered |
After the goods or services are delivered |
| Purpose |
To request goods or services from the supplier |
To request payment for delivered goods or completed services |
| What it includes |
Items ordered, quantities, prices, delivery info, and payment terms |
Items delivered, total cost, PO number, and payment instructions |
| Link to payment |
Used to approve and control the order |
Used to trigger payment after delivery |
For example, a construction manager at Site C creates a PO for 80 sheets of plasterboard. Once delivered, the supplier sends an invoice with the same PO number. The finance team checks that the quantity and price match. Only then is the invoice approved for payment.
What are the Types of Purchase Orders?
The main types of purchase orders are standard, planned, blanket, and contract. Each type is used depending on how clear the order details are and how often the buyer needs to order from the same supplier.
Below are the four main types of purchase orders and how each one works:
- Standard Purchase Order: Used for one-time orders with fixed details like item type, quantity, price, delivery date, and payment terms
- Planned Purchase Order: Created in advance based on estimated needs but without fixed delivery schedules or quantities
- Blanket Purchase Order: Used when ordering the same items regularly from the same supplier under one set of terms and prices
- Contract Purchase Order: A legal agreement that sets the terms and conditions for future POs, without listing specific goods or services
In construction, a project team may use a standard PO to order formwork for a specific site and a blanket PO for repeated deliveries of cement across multiple projects. Each type helps match the PO to the situation, keeping the process simple and clear.
Do Small Businesses Need to Use Purchase Orders?
Yes, small businesses should use purchase orders when they want better control, clear records, and simple approval for their purchases. A PO helps organize the ordering process, even with limited staff or resources.
Here are the key reasons small businesses benefit from using purchase orders:
- Track what was ordered: A PO shows the product or service, quantity, and total cost
- Avoid confusion or duplicate orders: Everyone can check what has already been approved
- Centralize vendor and order details: The PO includes supplier name, contact, delivery info, and payment terms
- Simplify payment processing: Invoices can be matched to POs to confirm everything before paying
- Improve spending visibility: Owners or managers can see purchase history and keep costs under control
Even small businesses with low order volumes can face problems without a system in place. Using purchase orders gives clear proof of what was ordered and approved. This supports smarter decisions, reduces risk, and makes it easier to grow the business without losing control of spending.
How Mastt Helps in Managing Purchase Orders in Construction
Mastt helps construction professionals manage purchase orders by giving full visibility into project spending, supplier contracts, and budget tracking in one platform. It replaces spreadsheets with real-time tools that simplify approvals, control payments, and keep projects financially on track.
Here’s how Mastt can help with purchase order and cost management:
- 📊 Track project spend in real time: Keep updated records of committed costs linked to purchase orders and contracts
- 🧾 Centralize PO and contract data: Store all supplier agreements, payments, and approvals in one place
- ✅ Simplify approvals: Route purchase orders through the correct approval chain with automated workflows
- 💰 Monitor budgets vs actuals: Compare approved budgets with what’s been ordered and paid
- 🔍 Improve financial accuracy: Reduce payment errors by matching POs with contract terms and invoice data
- 📁 Automate project reporting: Use dashboards to report PO activity, progress claims, and payments instantly
- 🚧 Connect teams across sites: Give project managers and finance teams a shared view of spending and procurement
Mastt gives you full control and visibility over purchase orders, so you can focus on building instead of chasing paperwork. Start streamlining your procurement in construction and cost control with Mastt today!
