In this guide 6 sections
A purchase order moves through eight steps: requisition, quotation comparison, approval, issue, amendment, goods receipt, short supply handling and return to supplier. Each step creates one record. One named person owns it. The PO closes only when the goods receipt, the supplier invoice and any purchase return agree on quantity and rate, line by line.
Start with a requisition, not a phone call
The store keeper or a department head raises a purchase requisition naming the item, the quantity, the needed-by date and the cost centre. Nothing is ordered yet. When the requester also owns the supplier relationship, the requisition quietly becomes an order placed by phone, and the buyer learns of it when the invoice reaches accounts.
This record matters. The requisition is the only proof that someone with a need asked first, and without it a buyer orders from memory while nobody can say who wanted the goods.
The purchase manager checks the requisition against stock on hand and open orders, so duplicate demand shows up here before any money is committed.
- Item code and specification
- Quantity and unit of measure
- Needed-by date
- Cost centre or job number
- Requester and approver
Compare quotations before you pick a supplier
For anything above a routine buy, send a request for quotation to at least three suppliers and record each reply against the same requisition. Price is one column, while delivery time, payment terms, freight and tax treatment fill the remaining columns and often change which supplier looks cheapest. Ask each supplier to quote against the same specification and the same quantity, otherwise the comparison sheet lines up unlike things and the lowest rate means nothing at all.
A comparison sheet keeps the choice honest. The buyer owns this step and writes the reason for the chosen supplier on the sheet, so an auditor or a new colleague can read it a year later.
Approve against a limit, then issue the PO
The approver depends on value, so a supervisor may clear small lines while a finance head or the owner signs larger commitments. Set these limits once. Apply them to every order.
Once approved, the buyer issues a purchase order carrying a unique number, supplier details, item lines, agreed rate, delivery address, payment terms and the quotation reference. Send it as a PDF. Never as a chat message. A good PO also states the inspection requirement, the packing standard and who pays for transit damage, since these clauses decide the argument when a pallet arrives crushed.
The supplier acknowledges it in writing with a confirmed delivery date, because an order that nobody has acknowledged is only an intention, and an unconfirmed date is a hope.
- Approval limits by value band
- Unique PO number
- Agreed rate and terms
- Delivery address and date
- Supplier acknowledgement
Handle amendments and short supply openly
Rates change. Dates slip. When that happens, raise a numbered amendment against the original PO and never overwrite the first version, because the revision history settles any dispute about what was agreed. Keep every one.
At the dock, the store checks the delivery against the PO and the supplier’s delivery note, then posts a goods receipt. Count, inspect, record shortfalls. The goods receipt note should be posted by the store, not the buyer, so that the person who ordered the goods is never the person confirming that they came.
Part delivery keeps the PO open. The buyer decides whether to wait for the balance, cancel it or buy elsewhere, and writes that decision on the PO for accounts to see.
- Amendment number and reason
- Goods receipt note
- Short quantity per line
- Balance kept open or cancelled
Close the PO only when three records agree
Match the purchase order, the goods receipt and the supplier invoice, and expect quantity and rate to agree on all three. Accounts pays only the matched lines. Where the invoice rate differs from the PO rate, hold that line in dispute and pay the undisputed balance, instead of paying everything and hoping for a credit note.
Rejected goods go back on a purchase return, with a debit note that cancels the matching amount until the supplier’s credit note arrives and replaces it. Chase it.
Close the PO once every line is received, invoiced and settled, with the close date and the closer’s initials written on the tracker. This week, pick five open orders older than sixty days and ask the buyer to explain why each one is still open and who is holding it up.
PO life cycle tracker
A one page sheet. Each purchase order gets a row with columns for requisition, supplier, quotation compared, approver and date, PO number, amendments, goods receipt date, short quantity, match status and return note. The last column holds the close date. Initials go beside it.
Open a blank worksheet to printQuestions owners ask
Who should be allowed to raise a purchase order?
Only the buyer or purchase manager. Requesters raise requisitions. Splitting the two roles stops people ordering for themselves and gives the approval trail a meaning, because someone other than the requester signs every commitment. Where one person does both in a small firm, add a second approver for orders above your limit so that a real check still exists.
Do small buys need three quotations?
Not usually. Set a value band below which a standing rate or a single supplier is fine, write that band into your purchase policy, and apply quotation comparison above it. The simple test is whether the time spent comparing quotes exceeds the saving you could realistically expect from doing it, which for a box of stationery it will.
What is a three way match?
It compares the purchase order, the goods receipt and the supplier invoice, and quantity and rate must agree on all three before accounts releases payment. A mismatch goes back to the buyer.
Can a PO be changed after it is issued?
Yes, through a numbered amendment that the supplier accepts in writing, with the reason and the changed lines listed at the top of the page. The original stays on file. Never edit a sent order silently, because the two sides will then hold different versions and the dispute will turn on whose copy is newer.