What does it mean to pay by purchase order?

Question

Not sure if this is the right place to ask, but I'll give it a try anyway. I sell some software online that customers pay for using a payment processing service which allows you to pay using a debit/credit card or PayPal. But now a potential customer wrote to us telling they can't pay using a debit/credit card but instead through a purchase order. This is the exact quote:

Can we pay through a purchase order/invoice process?  We are unable to pay by credit card.

I thought a purchase order was some paperwork companies handled internally, but apparently that's also how I'd get paid. So is it some kind of check? How would we actually collect the money out of a purchase order?
This is a university with verified email so I don't think it is any kind of scam.

Peter Green · Accepted Answer

At least in the UK most business to business transactions are done on credit with the supplier, that is the supplier supplies the goods first and then is paid some time later (30 days is common). I think things are similar over in the US but I'm not sure.
In terms of paperwork the flow is generally.

The customer sends a purchase order requesting to purchase the goods.
The supplier sends the goods and sends an invoice requesting payment, at larger customers the invoice may be sent to a different department
The customer pays according to the agreed terms

In the old days the purchase order and the invoice would be paper documents or faxes, nowadays they are more likely to be PDFs attached to e-mails. In the old days the payment would have been made by sending a cheque, now it's more likely to be made by a bank transfer.
Sometimes a purchase order number may be given without an actual purchase order document being sent. For example if the customer orders the goods verbally over the phone or by filling in a form on the suppliers website.

nanoman · Answer

You can clarify with the customer, but yes, a purchase order typically leads to being paid by check or bank transfer when the invoice is processed by the customer's "accounts payable" department. It's a method used by an institution to ensure it has a record of who spent its money on what and why, and that the product or service ordered was received.

Answered by nanoman on December 17, 2020

What does it mean to pay by purchase order?

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