The Purchase Order Process Explained — From PO to Invoice

If you're new to procurement — or trying to set up a more structured process in your business — understanding the full purchase order lifecycle is the foundation. Here's what happens at each stage, and what you need to do at each one.

What Is a Purchase Order?

A purchase order (PO) is a formal document that a buyer sends to a supplier to request goods or services. It specifies what you want, how much, at what price, and when you need it delivered. Once a supplier accepts a PO, it becomes a legally binding agreement.

For your business, a PO serves two purposes: it commits the supplier to deliver, and it gives you a reference document to match against the delivery and invoice later.

Stage 1: Purchase Requisition

Before a PO is created, someone in the business identifies a need and requests approval to purchase. In small businesses this step is often informal — a manager decides to buy something. In larger organizations it involves a formal approval workflow.

Key information at this stage: What is needed, why, how much it should cost, which budget/cost center it comes from.

Stage 2: Supplier Selection and Quotation

Once the need is approved, you select a supplier and request a quote. For routine purchases from approved suppliers you may skip this step. For new or large purchases, getting 2–3 quotes is good practice.

Stage 3: Purchase Order Creation (Status: 20 — Unconfirmed)

You create the PO and send it to the supplier. At this point the order is unconfirmed — the supplier hasn't acknowledged it yet. This is a common stage where orders get lost: you sent the email, but did they receive it? Did they confirm the delivery date?

Action needed: Follow up if no confirmation within 24–48 hours.

Stage 4: Supplier Confirmation (Status: 30 — Confirmed)

The supplier confirms the order and provides a confirmed delivery date. This is the date you plan around — not the date you asked for.

Stage 5: In Transit or Backorder (Status: 40 — Backorder)

If a supplier can only partially fulfill your order, or if there's a delay after confirmation, the order enters backorder status. You need to communicate this to whoever is waiting for the goods and update your planning accordingly.

Stage 6: Goods Receipt (Status: 45 — Delivered)

The delivery arrives. At this stage you should:

• Count and inspect the goods against the PO
• Note any discrepancies (wrong quantity, damaged goods)
• Mark the order as delivered in your system
• Raise a claim if there are quality or quantity issues

Stage 7: Invoice Matching and Payment (Status: 50 — Invoiced)

The supplier sends an invoice. Match it against the PO (agreed price, quantity) and the delivery receipt. If everything matches, process for payment. If there are discrepancies, resolve with the supplier before paying.

Where Most Businesses Lose Track

The highest-risk stages are Stage 3 (unconfirmed) and the transition from Stage 3 to 4. POs that go unconfirmed get forgotten. Deliveries that are confirmed but not tracked closely get missed when the date passes without action.

A simple rule: any PO that hasn't moved status in 48 hours needs attention.