A purchase order process a small team will actually follow

Six purchase order steps for a small Indian business: raise the PO, receive against it, match the supplier bill three ways, then pay. With a worked example.

A purchase order process for a small business comes down to six steps. Decide what to buy, raise a numbered purchase order (PO), receive the goods against it with a goods receipt note (GRN), check the supplier's bill against both the PO and the GRN, approve it, and then pay. Comparing the PO, the GRN and the bill is called a three-way match. It is the step that catches short deliveries, rate changes and bills that get paid twice. Below are the steps in order, with one party order worked through from start to finish.

Why bother with a process at all?

Most stock losses in a small business are not theft. They are leaks between documents. A party delivers 95 cartons and bills for 100. A rate quietly goes up by a few rupees. A bill comes in twice, once by courier and once on WhatsApp, and both get paid. Nobody notices, because nobody compares what was ordered with what came in and what was billed.

A process fixes that without adding staff. Each document gets checked against the one before it, and payment comes last.

What are the purchase order process steps?

1. Decide what to buy, and how much

Start from a trigger rather than a feeling. For regular items, that trigger is the reorder point: when stock falls to a set level, you order. Our guide to the reorder point formula shows how to set that level using your real lead times. Check your stock position first, meaning what is on hand plus what is already on order, so you do not order the same shortfall twice.

2. Raise a numbered purchase order

The PO is your written offer to the party. At minimum it carries:

PO number, which must be unique and run in sequence
Party name and GSTIN
Item, quantity, unit and agreed rate
Delivery date and delivery address (which godown, if you have more than one)
Payment terms

Send it in writing and keep a copy. A PDF on WhatsApp counts. A phone call does not.

3. Get the party to confirm

Ask the party to confirm the quantity, the rate and the date. If they change anything, such as a partial supply or a new rate, amend the PO now, before the goods move. A change agreed before dispatch is part of the order. A change you only discover on the bill is a dispute.

4. Receive the goods against the PO and record a GRN

When the truck arrives, the person at the godown counts the goods against the PO, not against the party's delivery challan. The GRN records what was received, what was accepted, what was rejected and why (damaged, wrong item, short supply). Only accepted quantity goes into stock.

Keep this job with someone other than the person who placed the order. That split is what gives the check its value.

5. Match the supplier bill in three ways

When the bill arrives, compare it line by line:

Check	Compare	What it catches
Quantity	Bill quantity against GRN accepted quantity	Billing for goods that were short, damaged or never sent
Rate	Bill rate against PO rate	Quiet price increases and wrong slabs
Terms	Bill items, taxes and charges against the PO	Freight nobody agreed to, wrong items, duplicate bills

If all three agree, the bill is approved. If they do not, hold the lines that differ and ask the party for a revised bill or a credit note.

6. Pay the matched amount and close the PO

Pay what was matched, by the due date in your terms, and record the payment against the bill number. Then mark the PO as closed, or as partly received if a balance is still to come. An open PO with nothing left to deliver is how ghost orders pile up.

What does this look like for one real order?

The figures below are illustrative.

A distributor orders 100 cartons of a packaged item from a regular party at ₹1,200 per carton, ₹1,20,000 before tax, with 30-day terms.

PO. PO-0412 goes out for 100 cartons at ₹1,200, delivery to the main godown within five days. The party confirms by message.

GRN. The truck brings 100 cartons. The godown counts them and finds 4 crushed. The GRN records 100 received, 96 accepted and 4 rejected as damaged. Stock goes up by 96.

Bill. The party's bill shows 100 cartons at ₹1,240, plus a freight line of ₹1,500.

Three-way match.

Quantity: the bill says 100, the GRN says 96 accepted. A 4-carton gap.
Rate: the bill says ₹1,240, the PO says ₹1,200. A ₹40 gap on every carton.
Terms: the PO says nothing about freight. A ₹1,500 charge nobody agreed to.

Outcome. The matched value is 96 × ₹1,200 = ₹1,15,200 before tax. The bill asked for 100 × ₹1,240 + ₹1,500 = ₹1,25,500. Without the match, the distributor would have overpaid by ₹10,300 on one order. The accounts person writes to the party, gets a revised bill for 96 cartons at ₹1,200 with no freight, and pays that amount on the due date. PO-0412 is closed, with the 4 rejected cartons noted for return.

Who should do what in a small team?

Even a three-person business can split the work:

Step	Owner
Decide and raise the PO	Owner or purchase person
Receive and record the GRN	Godown or shop staff
Match the bill and approve	Accountant or a second person
Release payment	Owner

If one person has to do everything, at least do the steps on different days and against paper, never from memory. A distributor handling many parties and SKUs will want this built into their system. Our guide to wholesale distributor inventory covers that setup.

What are the common mistakes?

Receiving against the challan instead of the PO. The challan is the party's version of events. Your PO is yours.
Editing the PO to fit the bill. The mismatch disappears from your records, but the overpayment does not.
Paying from the bill alone. No GRN, no payment. Make this the one rule nobody breaks.
Leaving POs open forever. Close them or mark them partly received each week.
No PO numbers. Without a sequence you cannot spot a missing or duplicated order.

When does this not apply?

Very small cash purchases, such as tea, stationery or a one-off spare part, do not need a PO. Set a value limit below which a petty cash voucher is enough. Services such as repairs and transport do not have a GRN. Use a sign-off from the person who received the service instead.

The tax side of purchases, such as when you can claim credit for GST paid on a bill, is outside the scope of this guide. For a starting point, see our post on input tax credit rules, and confirm current rules with your CA. A clean three-way match does make that later work easier, because every bill you claim is already tied to goods you actually received.

FAQ

Does a small shop really need purchase orders? If more than one person orders stock, or you buy from more than a handful of parties, yes. A PO does not have to be formal. A numbered message with item, quantity, rate and delivery date is enough. What matters is having something written down to check the delivery and the bill against later.

What is a GRN and who should prepare it? A goods receipt note records what physically arrived: item, quantity accepted, quantity rejected and the reason. The person who counts the goods at the godown should prepare it, not the person who placed the order. Keeping those two jobs with different people is what makes the check worth doing.

What should I do when the bill does not match the PO? Pay only for what is agreed and received. Hold the payment for the lines that do not match, tell the party in writing, and ask for a revised bill or a credit note. Do not change the PO afterwards to fit the bill. If you do, the mismatch disappears from your records but the money is still gone.

Can I pay a supplier before the goods arrive? Yes, plenty of parties ask for an advance. Record it against the PO as an advance, not as a payment of the bill. When the goods and the bill arrive, run the same three-way match and adjust the advance against the matched amount. Anything you paid beyond that becomes a balance the party owes you.