Purchase Order (PO)

A Purchase Order (PO) is a formal document issued by a buyer to a supplier specifying the products, quantities, and agreed prices for a planned inventory order. This legally binding contract protects both parties by clearly outlining order details, delivery dates, payment terms, and shipping information. Once accepted by the supplier, the PO becomes a commitment to fulfill the order according to the specified terms.

Why it matters for e-commerce brands

For Shopify and DTC merchants, purchase orders are essential for maintaining accurate inventory records and cash flow management. POs create a paper trail that helps reconcile received inventory against what was ordered, prevent duplicate orders, and track committed capital before products arrive. They also provide crucial documentation for accounting purposes, helping brands forecast inventory costs and maintain proper financial records as they scale.

Example

A Shopify skincare brand forecasts needing 2,000 units of their bestselling moisturizer for the upcoming quarter. They issue a PO to their contract manufacturer specifying 2,000 units at $8.50 per unit, totaling $17,000, with delivery expected in 45 days and payment terms of Net 30. The PO includes the product SKU, packaging specifications, shipping address to their 3PL warehouse, and the agreed-upon delivery date. When the shipment arrives, the brand's operations team uses the PO number to verify the correct items and quantities were received and to process the supplier's invoice for payment.

Related terms

• Invoice
• Bill of Lading (BOL)
• Lead time
• Minimum Order Quantity (MOQ)
• Receiving process