What Is Purchase Order?
A purchase order is a formal document that a contractor sends to a supplier, vendor, or subcontractor before receiving materials or services. The PO specifies exactly what is being ordered, the quantity, the agreed unit price, the delivery location, and any other terms. It creates a paper trail for every purchase and establishes what was agreed before the goods or services are delivered.
Why It Matters to Contractors
POs protect contractors from billing disputes with suppliers and help track material costs by job. When a supplier invoices at a different price than what was verbally agreed, the PO is the documented reference. POs also create an approval workflow for large purchases, which helps prevent unauthorized spending on large jobs with multiple team members ordering materials.
How It Works
Before ordering materials or engaging a subcontractor, the contractor prepares a purchase order specifying what is needed, at what price, and by when. The supplier fulfills the order and sends an invoice referencing the PO number. The contractor matches the supplier invoice against the original PO to verify that prices and quantities match before approving payment. Any discrepancies are resolved before payment is released.
A roofing contractor orders 40 squares of shingles from a supplier for a commercial job. Instead of placing a verbal order, they issue a purchase order specifying the product, quantity, unit price, and delivery address. When the supplier ships the order, they send an invoice referencing the PO number. The contractor verifies the delivery against the PO before approving payment.
Purchase Order vs. Invoice
A purchase order is sent by the buyer (the contractor) to the seller (the supplier or subcontractor) before the transaction occurs. An invoice is sent by the seller to the buyer after goods or services are delivered, requesting payment. The PO establishes what was agreed; the invoice confirms what was delivered and what is owed. For organized job cost tracking, each supplier invoice should reference the PO it fulfills.
How Contractors Track This
Purchase orders are tracked through procurement or job costing software. Each PO is assigned a number and linked to the job it supports. When the supplier invoice arrives, it is matched to the PO. The total of all POs issued against a job provides a running view of committed material costs even before those invoices are paid.
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Frequently Asked Questions
Do small contractors need purchase orders?
Not always. For contractors who buy materials directly from a single supplier on a job-by-job basis, a PO process can be more overhead than it is worth. But as job size, material volume, and the number of suppliers or subcontractors grows, POs become a practical necessity for controlling costs and resolving billing disputes. Many contractors start using POs when they begin managing multiple large jobs simultaneously.
How does a purchase order affect job costing?
Purchase orders make job costing more accurate because they let you track committed costs, meaning costs you have agreed to pay but have not yet received invoices for. Without POs, your job cost report only reflects bills already received. With POs, you can see a more complete picture of what a job will ultimately cost, even mid-project.
What is the difference between a purchase order and a work order?
A work order is an internal document that authorizes and records work performed for a client. A purchase order is an external document sent to a supplier or subcontractor to authorize a purchase. The two documents serve different purposes: work orders manage the work you perform; purchase orders manage the materials and subcontractor services you buy to perform that work.