purchase order
Purchase Order: a buyer's written promise to pay for specific goods or services before they are delivered, and proof a supplier can take to the bank.
In plain English
Here is the backwards part. A piece of paper with no money attached to it can sometimes get a small business a loan faster than months of profit can. That paper is a purchase order.
A purchase order, often shortened to PO, is a document a buyer sends to a supplier stating exactly what they want, how much of it, at what price, and when they need it delivered. It looks plain, almost boring, but it is legally binding once the supplier accepts it. It says, in effect, I promise to pay for this if you bring it.
Say a Lagos based caterer wins a contract to supply lunch packs to a bank for a week long training. The bank's procurement office sends her a purchase order for 500 packs at ₦2,500 each, totalling ₦1,250,000, with payment fifteen days after delivery. She cannot eat that PO, but she can walk into a supplier of rice and chicken, show it, and ask for stock on credit. She can even take it to a lender offering purchase order financing, who advances her part of the money against the promise the bank has already made in writing.
In the United Kingdom, a small furniture maker supplying a hotel chain works the same way. No PO, no work begins, because the finance department will not release payment without one to match against the invoice later.
For someone abroad supporting a sibling's small supply business back home, understanding purchase orders matters too. If your sister says a company has given her a PO worth ₦3,000,000 but she needs ₦800,000 upfront for materials, that PO is not empty talk. It is the reason a bridging loan or your own transfer makes sense, because the money owed to her is already promised on paper.
A Port Harcourt stationery supplier receives a PO from a school for 200 cartons of exercise books at ₦4,500 each, worth ₦900,000, payable thirty days after delivery, giving her something concrete to show her own supplier when asking for credit.
Questions people ask
Is a purchase order the same as an invoice?
No. The purchase order comes first, from the buyer, saying what they intend to order and pay for. The invoice comes after delivery, from the seller, asking to be paid for what was actually supplied. Businesses match the two before releasing payment.
Can a purchase order be cancelled?
Yes, but usually only under conditions stated in the document itself or by mutual agreement, and sometimes with a cancellation fee if the supplier has already started work or bought materials against it.
How do small businesses in Nigeria use a purchase order to raise money?
Some banks and fintech lenders offer purchase order financing, where they advance a percentage of the order's value to help the supplier buy stock or pay staff, then recover their money once the buyer pays in full.
Last reviewed