What Is a Purchase Order?

A purchase order (PO) is a document sent to a supplier confirming your intent to buy goods or services. It specifies items, quantities, agreed prices, and delivery terms. In accounting, POs serve three purposes: they control spending against budgets, provide an audit trail for invoice verification, and help manage inventory levels.

For UK small businesses using Xero, purchase orders sit between the decision to buy and the actual bill arriving. They create a paper trail that links every expense back to an approved order, which matters for VAT records, year-end accounts, and audit readiness.

What Are the 4 Types of Purchase Order?

  • Standard PO – a one-off order for specific items at agreed prices. Most common for small businesses.
  • Planned PO – commits to buying from a supplier over a set period, with delivery dates specified upfront.
  • Blanket PO – an open agreement with a supplier for recurring purchases (e.g. monthly office supplies) without fixing exact quantities each time.
  • Contract PO – a formal agreement setting terms and conditions, typically used alongside standard or planned POs for large or ongoing procurement.

Xero supports standard purchase orders out of the box. For blanket or contract POs, you can use Xero integrations with specialist procurement apps from the Xero App Store.

How Do Purchase Orders Work in Xero?

In Xero, a purchase order tracks what you have ordered from a supplier before you receive the goods or the bill. You create a PO, send it to the supplier, and when the goods arrive, convert the PO into a bill with one click. This links the original order to the payment, giving you a clear audit trail and accurate expense tracking.

Xero shows the status of each PO – Draft, Submitted, or Billed – so you always know which orders are outstanding. You can filter by status, supplier, or date range to get a real-time view of your procurement pipeline.

How to Create a Purchase Order in Xero

  1. Go to Business > Purchase Orders and click New Purchase Order.
  2. Select the supplier from your contacts list (or add a new one).
  3. Enter the delivery address if it differs from your registered address.
  4. Add line items: description, quantity, unit price, account code, and tax rate.
  5. Set the delivery date and add any notes for the supplier.
  6. Click Approve to finalise, then Send to email the PO directly to your supplier.

Each purchase order is automatically assigned a sequential PO number, which you can customise with a prefix (e.g. “PO-2026-001”). This numbering system makes it easy to reference specific orders when chasing deliveries or querying invoices with suppliers.

Watch: How to use purchase orders in Xero

Where to Find Purchase Orders in Xero

Navigate to Business > Purchase Orders. This screen shows all your POs organised by status: Draft, Awaiting Approval, and Approved. Use the search bar or filters to find a specific order by supplier name, PO number, or date range.

You can also access purchase orders from a supplier’s contact record. Open the contact, click the Activity tab, and all POs, bills, and payments for that supplier appear in one timeline.

Converting a Purchase Order into a Bill

When goods arrive, open the purchase order and click Copy to Bill. Xero pre-fills the bill with the PO details – line items, quantities, and prices – so you only need to verify the amounts and add the invoice number from your supplier. This eliminates duplicate data entry and ensures your expense records match what was originally ordered.

If the supplier delivers only part of the order, you can partially convert the PO. Xero keeps the remaining items on the original purchase order so you can convert the rest when they arrive. This is common in manufacturing and wholesale where split deliveries happen regularly.

Customising Purchase Order Templates

To brand your POs, go to Settings > Invoice Settings > Purchase Orders. You can upload your logo, choose fonts and colours, add custom fields (like a project reference), and set a numbering prefix. A professional-looking purchase order template reinforces your brand with suppliers and reduces back-and-forth on order details.

Custom fields are particularly useful if you need to reference project codes, cost centres, or department names on your POs. The supplier sees these on the document, and they flow through to the bill when you convert, keeping your records consistent.

Purchase Order Approval Workflow

If your business needs spending controls, enable purchase order approvals in Xero. Users with standard roles can create POs but must submit them for approval. Admins or authorised approvers then review and approve before the PO can be sent to the supplier. This prevents unauthorised purchases and keeps procurement within budget.

For businesses with multiple approvers or spending tiers, third-party approval workflow apps from the Xero App Store add more granular control. Apps like ApprovalMax and Lightyear let you set approval rules based on amount, department, or supplier category – so a £500 stationery order routes differently from a £15,000 equipment purchase.

Watch: Send your supplier a purchase order with Xero

Best Purchase Order Apps That Integrate with Xero

Xero’s built-in purchase order features cover the basics, but if your procurement process is more complex, these Xero App Store integrations add extra capability:

  • ApprovalMax – multi-level approval workflows for purchase orders and bills. Set rules by amount, supplier, or category. Integrates directly with Xero so approved POs sync automatically.
  • Precoro – full purchase order management system with budget tracking, three-way matching (PO vs delivery note vs invoice), and supplier portal. Syncs purchase orders and bills with your Xero account in real time.
  • Lightyear – automates accounts payable by extracting data from supplier invoices and matching them against purchase orders in Xero. Reduces manual data entry significantly.
  • Tradify – built for trades businesses (plumbers, electricians, builders). Creates purchase orders from job quotes and syncs them to Xero for invoicing and cost tracking.

All of these apps are available from the Xero Marketplace UK and offer free trials. If you are unsure which suits your business, get in touch and we can advise based on your procurement volume and complexity.

Tracking Inventory with Purchase Orders

If you use Xero’s inventory tracking, purchase orders automatically update your stock levels when you convert a PO to a bill and mark items as received. This gives you real-time visibility into what is on order versus what is in stock, helping you avoid shortages and overstocking.

For businesses that hold significant stock, linking purchase orders to Xero’s inventory management means your financial records always reflect actual stock movements. The cost of goods sold updates automatically, and your balance sheet shows accurate inventory values without manual adjustments.

Purchase Order Best Practices for Small Businesses

Getting the most out of purchase orders in Xero comes down to a few habits:

  • Always create a PO before ordering – even for small purchases. It takes 30 seconds and saves hours of invoice queries later.
  • Use consistent item descriptions – if you buy “A4 copier paper” from one supplier, don’t call it “printing paper” on another PO. Consistent naming makes reporting and bank reconciliation easier.
  • Set up approval thresholds – decide a spending limit above which POs need approval. This is good governance and catches errors before they become expensive.
  • Review outstanding POs monthly – go to Business > Purchase Orders and check for old POs stuck in Draft or Submitted status. Chase suppliers or close POs that are no longer needed.
  • Match POs to bills on receipt – convert POs to bills as soon as goods arrive, while the delivery is fresh. Delays lead to mismatches and forgotten items.

Frequently Asked Questions

Can I email a purchase order directly from Xero?

Yes. Once a PO is approved, click Send and Xero emails it as a PDF attachment to the supplier’s email address stored in their contact record. You can customise the email subject line and body text in your email settings.

Is there a limit to how many purchase orders I can create?

No. All Xero plans include unlimited purchase orders. There is no extra charge for using this feature.

Can I use purchase orders if I am on Xero Starter?

Yes. Purchase orders are available on all Xero plans, including Starter (now called Ignite). You do not need a higher-tier plan to create, send, and convert POs.

How JacRox Can Help

Get in touch

Need help setting up purchase orders in Xero, configuring approval workflows, or choosing the right procurement app? Fill out the contact form below and a JacRox team member will be in touch.

Looking for related guidance? Our articles on accounts payable and accounts receivable in Xero, managing inventory in Xero, and bank reconciliation in Xero cover the next steps. You may also want to review how to set up user permissions for purchase order approval.

Not sure where to start? experienced Xero accountants can walk you through it.