Xero purchase orders: how to raise, approve and bill them

A purchase order is a simple promise: this is what we asked for, at this price. The point of it shows up weeks later, when the bill arrives and someone has to decide whether to pay it.

Xero has purchase orders built in. Most small teams never use them, and the ones that do often stop after a month. Here is how they work, step by step, and where they stop helping.

How to create a purchase order in Xero

1. In Xero, go to Purchases, then Purchase orders.
2. Click New purchase order and pick the supplier.
3. Set the date and the delivery date you expect.
4. Add a line for each item: description, quantity, unit price, account and VAT rate. If you use tracking categories, set them here so the cost lands in the right place later.
5. Add the delivery address and any delivery instructions.
6. Save it as a draft, or submit it for approval.

Xero numbers each order for you (PO-0001, PO-0002 and so on). Put that number in your email to the supplier and ask them to quote it on the invoice. It is the easiest way to match the two later.

How purchase order approval works in Xero

A purchase order moves through four stages:

• Draft: still being written.
• Awaiting approval: someone has submitted it.
• Approved: it can be sent to the supplier.
• Billed: the supplier's bill has been created from it.

Once it is approved, you can email it to the supplier from Xero or download it as a PDF.

How to turn a purchase order into a bill

When the supplier's invoice arrives, open the approved purchase order and click Create bill. You choose how much of each line to bill, and Xero creates a draft bill with those lines, so you don't have to type them again.

Then edit the draft bill to match the supplier's actual invoice. The copy shows what you ordered, not what you were charged. If the supplier sent 10 cases instead of 12, or charged £13.00 instead of £12.50, the copied bill will be wrong until you change it.

Anything you didn't bill stays open on the purchase order for the next invoice. Once every line has been billed, Xero marks the order as Billed.

Where Xero purchase orders stop helping

Purchase orders in Xero are a record. They do not check anything for you.

• There is no delivery step. Xero doesn't record what actually arrived, so there is nothing to compare the bill against except the order.
• The comparison is done by eye. Nobody is told when a bill's price or quantity differs from the order. You find out only if someone spots it.
• Extras slip through. A delivery charge or an item nobody ordered goes straight onto the bill unless someone checks line by line.
• It works one order at a time. If a supplier sends one invoice covering three orders, or you order the same item twice, you have to work out by hand which order each line belongs to.
• Orders made by phone never exist. If the person ordering rings the supplier, no purchase order is raised, and the bill has nothing to be checked against.

That last point is why most purchase order processes fail. The tool works, but ordering happens in a kitchen, a warehouse or a site office, and the order never reaches the accounting software.

If you want the full version of this check (order, delivery and invoice), read our guide to three-way matching in accounts payable.

A simple purchase order routine that works

You don't need a big system to get value from purchase orders:

1. Order from a price list. Agree prices with each regular supplier and keep the list where the person ordering can see it.
2. Record every order, including phone and website orders. One line in a shared place is better than nothing.
3. Quote the order number in every email order.
4. Check the bill line by line before it is approved: same item, same price, quantity not more than was ordered.
5. Raise anything that doesn't match with the supplier the same week, while people still remember the delivery.

How FINIO handles purchase orders

FINIO does the checking in step 4 for you, and makes steps 1 to 3 quick enough that people actually do them.

• Ordering takes seconds. The person ordering picks items from the supplier's price list. Phone and website orders are recorded in one go. Email orders are sent from their own mailbox, with the order reference in the subject line.
• Every open order to one supplier counts as one pool. It doesn't matter how many deliveries or invoices arrive, or which order they belong to.
• The invoice is checked line by line. For each line, FINIO checks: was this item ordered, is the unit price the same, and is that quantity still expected? Anything that wasn't ordered, like a delivery charge, is flagged.
• You are told in plain words. For example: "3 of 5 lines matched. Line 4: price is different (expected £12.50, invoice £13.00)."
• Matched invoices go straight on to finance. Anything that doesn't match goes back to the site manager with the lines that failed, and finance is told.

Your purchase orders in Xero keep working as they do today. FINIO adds the check that Xero leaves to you.