What is a purchase order? A practical guide for South African businesses

A purchase order is a document a buyer issues to a supplier that commits them to buy specific goods or services at an agreed price, before anything is delivered. It lists the items, quantities, prices, delivery details and a unique purchase order number. Once the supplier accepts it, it becomes a binding commercial agreement.

Key takeaways

• A purchase order is the buyer's written commitment to buy, issued before delivery. An invoice is the supplier's request to be paid, issued after it.
• Every purchase order carries a unique purchase order number, which is how the buyer matches the delivery and the invoice back to the original order.
• A purchase order is not a tax invoice and cannot be used to claim VAT.
• In South African government procurement, the purchase order is the document that formally releases an awarded contract into delivery.
• Because a purchase order proves a confirmed order exists, it can be used to raise the working capital needed to deliver it.

What is a purchase order?

A purchase order, almost always shortened to PO, is a commercial document issued by a buyer to a supplier. It sets out exactly what the buyer wants to buy, how much of it, at what price, and when and where it must be delivered.

The important thing about a purchase order is its timing. It comes before the goods or services change hands. That makes it a commitment rather than a record. The buyer is saying, in writing, that they intend to buy on these terms.

Once the supplier accepts the purchase order, the two parties have a binding agreement covering that order. Acceptance can be a signature, a written confirmation, or simply starting to fulfil the order. This is why suppliers are told never to start work on a verbal instruction alone. Without the PO, there is no document proving what was agreed.

Purchase orders are used most heavily by organisations that buy in volume and need an audit trail: government departments, municipalities, state-owned entities, mines, retailers and large corporates. If you supply any of those, you will work with purchase orders constantly.

What goes on a purchase order?

Formats differ between organisations, but a usable purchase order carries the same core information. Check for all of it before you accept one.

• Purchase order number – the unique reference for this order.
• Buyer and supplier details – registered names, addresses and contact people for both sides.
• Date of issue – and, where it applies, a validity period.
• Line items – a description of each product or service, with quantity, unit price and total.
• Specifications – sizes, grades, standards or model numbers. This is where disputes usually start, so vague specs are worth querying early.
• Delivery address and date – where the goods must go and by when.
• Payment terms – typically 30 days from a valid invoice in South African public sector work.
• Authorised signature – the name of the person with delegated authority to commit the buyer.

If a purchase order arrives missing the specification, the delivery date or an authorised signature, query it before you spend money against it. A PO that the buyer's own finance team cannot recognise is not something you want to have already bought stock for.

What is a purchase order number?

A purchase order number is the unique reference the buyer assigns to a single order. It is short, but it does most of the administrative work in the transaction.

The buyer uses it to match three things that arrive at different times: the original order, the delivery note when the goods arrive, and the invoice when the supplier asks to be paid. This is called three-way matching, and it is why an invoice submitted without the correct PO number is so often sent back unpaid.

For a supplier, the practical rule is simple. Put the purchase order number on your delivery note, your invoice and any query you raise. In most large organisations, and in every government department, an invoice with no PO number cannot enter the payment run at all.

Purchase order vs invoice vs quote

These three documents get confused constantly, and the difference is really just about who issues them and when.

One distinction matters for tax. A purchase order is not a tax invoice. Only a valid tax invoice, carrying the details SARS requires, supports a VAT input claim. Full requirements are on the SARS value-added tax pages. Treating a PO as an invoice is a common bookkeeping error and it will not survive an audit.

How purchase orders work in South African government procurement

In the public sector the purchase order sits at a specific point in a longer chain, and knowing where helps you plan.

A department advertises a tender or requests quotes. Bids are evaluated and an award is made. The award tells you that you have won, but it is the purchase order that formally releases the work into delivery. Until the PO is issued, there is nothing concrete to deliver against.

Public procurement is governed by the Public Finance Management Act and administered through National Treasury's Office of the Chief Procurement Officer, which sets the rules departments follow when they commit funds. Opportunities themselves are published on the national eTenders portal.

Two practical consequences follow for SMME suppliers. First, the purchase order is your evidence that a real, funded order exists, which is exactly what a funder needs to see. Second, payment follows delivery and a valid invoice, not the PO, so the gap between buying stock and being paid is yours to carry. If you have just received one and want the step-by-step, we cover it in what to do when you receive a purchase order.

Why a purchase order matters for cash flow

A purchase order creates a genuinely awkward moment for a growing supplier. You are holding proof of a confirmed order, and you now need to pay suppliers, buy materials and cover labour weeks before the buyer pays you. The bigger the order, the wider that gap.

This is the gap purchase order funding is built for. Rather than assessing your balance sheet or asking for collateral, the funder assesses the order itself: who the buyer is, whether they pay, and whether you can deliver. The confirmed PO is the asset. Sourcefin has deployed over R3 billion to South African SMMEs on that basis, working as a funding partner that helps the order actually get delivered.

Traditional bank credit serves a different mandate here. Bank lending is designed around trading history and security, which a young business holding its first large PO usually does not have yet. For a fuller comparison of the routes available, see the purchase order funding South Africa pillar guide, the documents required for purchase order funding, and how long purchase order funding takes.

Sources & references

• SARS. Value-added tax – tax invoice requirements. sars.gov.za
• National Treasury. Office of the Chief Procurement Officer. ocpo.treasury.gov.za
• National Treasury. Public Finance Management Act. treasury.gov.za
• National Treasury. eTenders portal. etenders.gov.za