Invoices and records
Purchase order
A purchase order is a document a buyer sends to a supplier requesting goods or services at an agreed price, and it is a useful internal record but not a tax invoice.
A purchase order, often shortened to PO, is a document issued by a buyer to a supplier setting out what is to be bought, the quantity, the agreed price and delivery terms. When the supplier accepts it, it usually forms a binding commercial agreement. Many businesses use purchase orders to control spending, because nothing is ordered without approval and a reference number.
A purchase order is not a tax invoice. It is a request to buy, whereas a tax invoice is issued by the supplier after or at the time of supply and is the document the buyer needs to claim a GST credit on purchases over $82.50. A purchase order may show GST, but its job is to document the agreement, not to support the credit. Always keep the supplier's tax invoice as well.
Purchase orders become powerful when they are matched with other documents. The classic approach is a three-way match, comparing the purchase order, the delivery docket and the supplier's invoice before paying. This catches overcharging, double billing and goods that never arrived. For small businesses, even a simple two-way match between PO and invoice improves control.
The PO number should appear on the supplier's invoice, which makes reconciliation faster. In accounting software, converting a purchase order into a bill carries across the details and avoids re-keying. Be sure that the GST treatment on the PO, such as whether prices are GST inclusive or exclusive, is clear to the supplier, because mismatches cause disputes and incorrect GST amounts.
From a GST timing perspective, issuing a purchase order does not by itself trigger a credit. Credits are generally claimed in the BAS for the period relating to the invoice or payment, depending on whether you account on an accrual or cash basis. Deposits and part payments made against a purchase order may have separate GST consequences.
Keep purchase orders with the rest of your source documents for five years. They can help explain why a particular cost was incurred, who approved it and what was agreed. This is general information only, so confirm how it applies to you with the ATO or a registered tax professional.
Worked example
A café owner issues purchase order PO-1042 to a packaging supplier for 20 boxes of takeaway containers at $110 each including GST, a total of $2,200. When the tax invoice arrives, it quotes PO-1042 and shows GST of $200 (2,200 divided by 11). She matches the two, confirms the delivery, pays the invoice and claims the $200 credit in the BAS.
Practical tips
- Do not treat a purchase order as a tax invoice; always keep the supplier's invoice to support a GST credit.
- Quote the PO number on invoices so matching and reconciliation are quick.
- State clearly on the PO whether prices include or exclude GST to avoid disputes.