Types of Purchase Orders in Supply Chain: A UK Guide for Efficient Procurement

Table of Contents

• What is a Purchase Order?
• The Four Types of Purchase Orders
  • Standard Purchase Orders
  • Planned Purchase Orders
  • Blanket Purchase Order
  • Contract Purchase Orders
• Key Components of a Purchase Order
• How Purchase Orders Work: Step-by-Step Guide
• Purchase Order vs Invoice: What’s the Difference?
• Best Practices for Managing Purchase Orders
• Tips for UK Businesses Using Purchase Orders
• FAQs

What is a Purchase Order?

A purchase order (PO) is a formal document sent by a buyer to a supplier to request specific goods or services. It acts as a legally binding agreement once accepted, detailing exactly what will be purchased, at what price, and by when.

In the UK, a PO is more than just paperwork — it’s a critical part of the procurement process that helps businesses maintain control, ensure compliance, and avoid costly misunderstandings. Whether you’re ordering raw materials, office supplies, or IT services, a well-structured purchase order protects both buyer and supplier.

For businesses of all sizes, using the right type of purchase order can significantly improve supply chain efficiency and cash flow management.

The Four Types of Purchase Orders

Not all purchases are the same. That’s why there are four main types of purchase orders, each designed for different procurement needs.

Standard Purchase Orders

The standard purchase order is the most common type. It’s used for one-off purchases where everything is known upfront — quantity, price, delivery date, and specifications.

Example: A London retailer ordering 500 branded tote bags for a promotional event.

This type is ideal when you need specific goods or services delivered once, with no repeat orders expected.

Planned Purchase Orders

A planned purchase order (PPO) is used when you know you’ll need items regularly, but exact quantities or delivery dates aren’t finalised.

Example: A manufacturer ordering steel components every quarter, with releases issued monthly.

It gives flexibility while securing pricing and supplier commitment — perfect for predictable but variable demand.

Blanket Purchase Order

A blanket purchase order (BPO) covers repeated purchases over a longer period — usually 6 to 12 months — without fixed quantities.

Example: A facilities team ordering cleaning supplies as needed, up to £10,000 annually.

You get fixed pricing, reduced admin, and faster ordering. Ideal for recurring, low-value items.

Contract Purchase Orders

Contract purchase orders (CPOs) create a framework agreement. No goods are ordered immediately — instead, individual POs are released against the contract later.

Example: A construction firm locking in rates with a subcontractor for a multi-phase project.

Great for long-term partnerships and large-scale projects.

Key Components of a Purchase Order

Every effective purchase order should include:

• Unique PO number (for tracking)
• Buyer and supplier contact details
• Full description of items to be purchased
• Quantities and unit prices
• Delivery date and location
• Payment terms (e.g., Net 30, early payment discount)
• VAT details (essential in the UK)
• Terms and conditions

Clear PO details prevent disputes and speed up approval and delivery.

How Purchase Orders Work: Step-by-Step Guide

Here’s how the purchase order process typically works in UK businesses:

1. Need Identified → A department submits a purchase requisition.
2. Approval → Budget holder or procurement team reviews and approves.
3. PO Created → Using a purchase order system (manual or automated via ERP).
4. PO Sent → Electronically or via email to the supplier.
5. Supplier Accepts → PO becomes legally binding.
6. Goods Delivered → Checked against PO upon receipt.
7. Invoice Received → Matched to PO (3-way matching: PO, receipt, invoice).
8. Payment Made → According to agreed terms.

Using an automated purchase order system cuts processing time by up to 70% and reduces errors.

Purchase Order vs Invoice: What’s the Difference?

Purchase Order (PO)	Invoice
Issued by buyer	Issued by supplier
Requests goods/services	Bills for delivered goods/services
Sent before delivery	Sent after delivery
Starts the transaction	Closes the transaction

Think: PO = “Please send this” | Invoice = “Please pay for this”

Best Practices for Managing Purchase Orders

Follow these best practices to run a smooth, compliant procurement operation:

• Centralise PO creation in one system
• Automate approvals to avoid bottlenecks
• Train staff on when to use each type of purchase order
• Audit POs regularly for compliance and spend accuracy
• Integrate with ERP/accounting for real-time visibility

A strong purchase order management strategy saves time, reduces fraud, and improves supplier management.

Tips for UK Businesses Using Purchase Orders

1. Always include VAT — HMRC requires it on all POs over £100.
2. Use e-signatures — Speeds up approval and meets UK eIDAS standards.
3. Factor in Brexit delays — Add buffer time for EU imports.
4. Negotiate early payment discounts — Many suppliers offer 2% for payment within 10 days.
5. Go digital — Paper-based POs cost 5x more to process.

Pro Tip: Review your POs quarterly to spot overspending or unused blanket orders.

FAQs

What are the four types of purchase orders?

Standard, planned, blanket, and contract purchase orders — each suited to different buying scenarios.

When should I use a blanket purchase order?

Use a BPO for recurring, low-value items like stationery, maintenance supplies, or utilities.

Is a purchase order legally binding in the UK?

Yes — once the supplier accepts it, the PO is a legally binding contract under UK law.

Can I cancel a purchase order?

Yes, but only before the supplier begins fulfilment. Always check terms and conditions.

Do I need a PO for every purchase?

Not always. Small, urgent, or low-risk purchases may use procurement cards. But for audit trails and VAT recovery, a PO is recommended.

Struggling with slow approvals, lost POs, or supplier disputes?

SL Global Logistics helps UK businesses streamline procurement with smart purchase order systems, automated workflows, and expert guidance on POs, invoices, and supplier management.

From setting up standard purchase orders to managing complex contract purchase orders, we’ve got you covered.