A purchase order, or PO, is a formal document a buyer issues to a Supplier or Subcontractor, setting out what is being bought, at what price, in what quantity and on what terms, before the work or delivery happens. Once the supplier accepts it, the PO becomes a binding commitment. In construction, it is the main record a project team uses to show how much of the budget is already spoken for before any invoice arrives. Every PO carries a unique number, which becomes the reference point for matching the eventual invoice and resolving any dispute over price or quantity.
Worked example
A Main Contractor needs 40 tonnes of ready-mix concrete for a foundation pour. The buyer raises a PO for £6,800, with quantity, grade, delivery date and payment terms all specified, and sends it to the supplier before the lorries are booked. If the supplier's invoice later comes in at £7,100 instead, the mismatch shows up immediately against the PO rather than weeks later during month-end reconciliation. On a mid-size project, a contractor might issue 150 to 200 POs before completion, covering everything from structural steel to skip hire, so a consistent numbering and approval process matters as much as any single order.
Purchase orders in the budget
On a cost report, an open PO counts as a committed cost even though no invoice has landed yet. That matters because a project can look like it has plenty of budget left if only paid invoices are counted, when in reality £200,000 of material and Subcontract orders are already committed and will be invoiced within weeks. Tracking commitments alongside actual spend is what lets a Project Manager forecast cost to complete with any confidence. Matching each invoice back to its PO, sometimes called three-way matching against the order, the delivery note and the invoice, is what stops a project from paying twice for the same delivery or paying a price that was never agreed.
Related terms
Supplier, Subcontract, Invoice Reconciliation, Commitments & Liabilities, Request for Quotation (RFQ) (RFQ).
FAQs
What is the difference between a purchase order and an invoice?
A PO is raised by the buyer before the work or delivery, authorising the purchase. An invoice is raised by the supplier afterwards, requesting payment for what was actually delivered.
Do all construction purchases need a PO?
Many contractors set a threshold, for example a few hundred pounds, below which a PO is not required. This keeps paperwork off minor purchases while still controlling larger commitments.
Planyard lets teams raise, approve and track purchase orders against the live budget, so committed costs are visible before the invoice turns up.