A purchase order, or PO, is a document a buyer sends a seller to order goods or services at agreed terms. It states what is being bought, how much of it, at what price, and when it is needed. It is an offer: once you accept it, there is a contract. For a one-person business the important thing about POs is usually not issuing them — it is asking for one, because most large and government clients cannot pay an invoice that does not quote a PO number.
Purchase order vs invoice
They describe the same transaction from opposite ends of it.
| Purchase order | Invoice | |
|---|---|---|
| Who issues it | The buyer | The seller |
| When | Before the goods or services are supplied | After they are supplied |
| What it says | I want to buy this, at this price, by this date | I supplied this; here is what you owe |
| Legal effect | An offer to buy — a contract once accepted | Creates a debt |
| GST effect | None. No supply has been made | A tax invoice supports the buyer’s GST credit |
| Goes in your books as | Nothing yet — it is a commitment, not revenue | Income, and a receivable until paid |
Why a PO number gets you paid faster
Any organisation big enough to have an accounts payable function runs three-way matching. Before an invoice can be approved for payment, the system tries to line up three documents:
- The purchase order — what was authorised, and by whom.
- The goods receipt or delivery confirmation — what actually arrived or was delivered.
- Your invoice — what is being charged.
If the three agree, the invoice is approved with no human involved. If your invoice has no PO number, there is nothing to match it to, and it lands in an exception queue where someone has to work out who ordered this and whether they had authority to. That queue is where invoices go to sit for a month. Nobody has refused to pay you — the invoice simply cannot move.
So: ask for a PO number before you start, and put it on the invoice in a field labelled "PO number", not buried in the description. If your contact says a PO is not needed, ask them to confirm it in writing — that email is what you send when the invoice stalls.
What is on a purchase order
- A PO number — the reference the buyer's system uses, and the one they need back on your invoice.
- Buyer and supplier details, including the entity that will actually be paying, which is not always the entity you have been talking to.
- A description of each item or service, with quantity, unit price and line total.
- The total value, and whether it includes GST.
- Delivery date and address, or the service period.
- Payment terms — often the buyer's standard terms rather than the ones you quoted.
- Terms and conditions, sometimes by reference to a document you have not read. Read it.
Check the total and the terms against your quote before you accept. A PO is the buyer restating the deal in their own words, and the numbers do not always survive the trip through their procurement system.
Common problems, and what to do
| Problem | What to do |
|---|---|
| The client will not issue a PO | Get the refusal in writing from someone with authority, and keep it. Then invoice as normal and attach that email if the invoice stalls in accounts payable. |
| The PO total is less than your quote | Stop before you start work. Invoicing above the PO value is the classic way to have an invoice rejected outright. Get the PO amended, or split the work. |
| The work grew beyond the PO | Ask for a variation or a second PO before doing the extra work, not after. A PO is a spending authority, and the person who approved it may not be able to approve more. |
| The PO has terms you did not agree to | Read the payment terms in particular — they often override what you quoted. Raise it before accepting; a PO you accept is the deal, not the deal you thought you had. |
| You lost the PO number | Ask your contact rather than guessing. An invoice with the wrong PO number is worse than one with none, because it may match against someone else’s order. |
Does a purchase order have any GST effect?
No. A PO is not a tax invoice, and neither party can claim a GST credit from one. Nothing has been supplied yet, so nothing has happened for GST purposes. The GST consequences begin when you issue the tax invoice or receive the payment, depending on whether you account for GST on a cash or an accruals basis.
A PO also should not go into your income figures. It is a commitment to buy, not revenue — plenty of them are cancelled or reduced.
Should a sole trader issue purchase orders?
Usually not. For a one-person business the overhead of raising a PO for every purchase buys you nothing you would not get from simply keeping the supplier's quote and the invoice together. Two exceptions worth the paperwork:
- Subcontractors. A short PO stating the scope, the price and the deadline is far cheaper than a dispute about what you asked for.
- Anything you are on-charging. If you buy materials to bill a client for, a PO gives you a clean paper trail from their approval to your purchase to your invoice.
Related reading
- What is an invoice? — the document that follows
- What is a proforma invoice? — often what a buyer needs to raise the PO
- How to get paid on time — the rest of the getting-paid problem
- What is a remittance advice? — what a corporate payer sends at the end
Frequently asked questions
A purchase order is an offer to buy. It becomes binding when the supplier accepts it — by confirming it, or in most cases simply by starting the work or shipping the goods. That is why you should check the price, scope and payment terms on a PO before you act on it, rather than treating it as paperwork.
A purchase order comes from the buyer, before the supply, and commits them to buy. An invoice comes from the seller, after the supply, and asks to be paid. The PO number appears on the invoice so the buyer’s system can match the two.
Not legally, and most small clients never issue one. But large corporates, universities and government departments run automated matching, and an invoice with no PO number cannot be matched and will sit in an exception queue. Ask whether a PO is required before you start the work, every time.
No. A purchase order is not a tax invoice and no supply has been made, so there is nothing to claim. The GST credit attaches to the tax invoice the supplier issues, and when you can claim it depends on whether you account for GST on a cash or an accruals basis.
Usually not — the paperwork buys you little when you are the only person spending money. It is worth it in two cases: engaging a subcontractor, where a short PO fixes the scope and price in writing; and buying materials you will on-charge, where it gives you a clean trail from the client’s approval to your invoice.
Sources
GST timing and tax invoice rules come from the Australian Taxation Office; general procurement and invoicing practice from business.gov.au. Confirm the current position at ato.gov.au or with a registered tax agent. Balaana is bookkeeping software, not a tax agent — this article is general information, not personal tax advice.