Do purchase orders slow you down — or speed you up?

During the first few months of running your business, it can often feel like you’re flying by the seat of your pants. Though you may be used to scrappy financial processes, eventually you’ll need to consider building systematized workflows that keep you on the path toward your business goals, no matter how much chaos swirls around you. 

Using purchase orders can help. Though some consider purchase orders to be unnecessary and slow, they can actually accelerate your business by offering clarity and accountability. And your business definitely doesn't need to be a large enterprise to use a purchase order. They’re useful for startups and small businesses, too. 

In this article, we’ll explore what a purchase order is and when you should consider using them in your business. Plus, we’ll show you the benefits of purchase orders when they’re implemented correctly, as well as the common pitfalls you may experience if you don’t get the implementation right. By the end, you’ll be well equipped to start creating your own purchase orders and using them regularly as part of your startup’s operations.

Is a purchase order the same thing as an invoice, and do you really need both? Here, we clear things up.

Purchase order definition

A purchase order (PO) is a formal document that the buyer sends to the seller outlining key details about the products or services they’re intending to buy before they buy them. In most cases, purchase orders go through an approval chain within the company prior to being sent to the seller. Purchase orders confirm order details, establish an audit trail, and authorize expenditures.

A purchase order typically includes the following key information: 

• Purchase order number
• Date
• Buyer details (like name, company, and billing address)
• Vendor details (like name, company, and billing address)
• Items being purchased (including name, SKU, quantity, relevant measurements, unit price, and total price)
• Subtotal, shipping and handling fees, taxes, and discounts
• Delivery and fulfillment information (such as delivery address and date)
• Payment terms
• Notes or special instructions
• Approvals and sign-offs

Purchase order vs. invoice

Often, purchase orders are conflated with invoices. Though the two are related, they are distinct in a few key ways:

• Who sends it: An invoice is sent from the seller to the buyer, whereas the purchase order is sent from the buyer to the seller. 
• When it’s sent: An invoice is sent after the goods or services have been delivered. A PO is sent before. 
• Its purpose: The role of an invoice is to outline the money the buyer owes the seller, whereas the PO outlines the items the buyer is looking to purchase. In a standard procurement process, you need both a purchase order and an invoice.

To find out what a typical purchase order looks like, take a look at Mercury’s PO template here.

Not every business needs to use purchase orders for every purchase. There are key scenarios where startups should consider implementing POs — and times when they’re just not necessary.

There are many reasons why companies use purchase orders, including the need for clarity, efficiency, and structure. Instead of slowing things down, POs can be an accelerant in your business. If you’re looking to scale, purchase orders standardize the purchasing process with approvals and guardrails. The result? Minimal chaos with tighter spend controls, even as your business grows. 

Why do companies use purchase orders? Here are some of the key advantages for your startup: 

• Prevents duplicate spending or overspending: If you want fewer unexpected bills and a cleaner budget, POs can help reduce surprise or redundant purchases.
• Streamlines approvals and builds accountability: No more chasing approvals by email or playing the blame game. A PO uses a standard approval process and clarifies who approved the purchase.
• Minimizes vendor disputes: All of the details are laid out in black and white, removing any ambiguity from the procurement process about pricing, dates, delivery instructions, and other key details.
• Enhances budgeting and forecasting: Your finance team can see the committed spend before it’s actually spent, which leads to more effective cash flow planning.
• Improves invoice processing: Remove the back-and-forth of dealing with invoice mistakes with clear pricing, quantities, and other details on the PO. Simply compare the PO to the invoice when you receive it.

Purchase orders can expedite and streamline procurement for your startup. But, if you’re not careful, they can also slow things down — a lot. Here’s what to watch for as you implement purchase orders in your business.

Overly complex approval trees

Carefully consider who needs to approve a purchase order and when. Do all purchase orders need three levels of approval, or is it more effective to have one approver if the purchase is over a certain threshold? Complex approvals can bring procurement to a halt.

Manual processes

If you’re still using spreadsheets and email for your purchase orders, you’re not doing yourself any favors. Automate purchase orders, notifications, and approvals with a smart system, like Mercury (more on that below).

Lack of integration with your financial tech stack

Your purchase order system must integrate with your banking, payments, and accounting tools so that data flows smoothly. Eliminate manually entering data wherever possible, since that can lead to costly errors.

No clear ownership of purchase orders

Be sure to clearly outline who is responsible for creating the PO, who should approve it, and who sends it. A simple accountability workflow needs to be in place when you introduce POs in your startup.

When you’re in the early stages of running your business, you’re no stranger to chaos. To bring some order, standardize your procurement process with purchase orders. This can streamline approvals, provide a detailed audit trail, and minimize vendor disagreements. Plus, POs help you control spending and improve forecasting. 

A modern, integrated financial tech stack makes it easy to implement a lightweight purchase order process. Mercury’s banking helps you build streamlined financial operations, including built-in invoicing and bill pay software empowers you to handle your finances with precision. Mercury’s business credit cards enable you to build business credit from day one, while earning 1.5% cashback. 

Use Mercury’s purchase order template as an example for creating your own, and build professional and personalized purchase orders in minutes with the free PO generator. With Mercury by your side, unlock speed, so you can outpace your competitors and confidently scale your business.