Why use a purchase order?
A purchase order (PO) is your written order to a supplier. It fixes the item, quantity, price and delivery date before the goods arrive, so there is no argument when the bill comes. When the supplier accepts your PO, it becomes a binding agreement.
The three-way match
Good businesses pay a supplier only when three documents agree: the purchase order (what you ordered), the delivery challan / goods received note (what arrived) and the supplier's invoice (what they charge). Any mismatch is caught before money leaves.
What to include
- PO number — ask suppliers to quote it on their invoice and challan
- Vendor name and contact, and the address to deliver to
- Items with specifications, quantity, unit price and VAT
- Delivery date and payment terms (advance, on delivery, 30 days credit)
- Approval signature — who in your business authorised the purchase
Tax deducted at source
If your business is a withholding entity, you must deduct income tax (and in some cases VAT) at source when paying suppliers. Use the source tax calculator to work out the net payment.