A contract purchase order is one issued against terms that were negotiated and signed separately, rather than carrying all of its own terms. It is the right shape when you buy repeatedly from one supplier: the contract settles liability, pricing mechanism and what happens when things go wrong, and each order simply draws against it with quantities and dates. It also means the order document can be much shorter.
It is an offer that becomes a contract when accepted
A purchase order is issued by the buyer and says what is being bought, how many, at what price and on what terms. Until the supplier accepts it, it is an offer. Once accepted, in most US jurisdictions under UCC Article 2, the two of you have an agreement on those terms. That is why what goes on the document matters more than its layout: the numbers on it are the ones you are agreeing to be billed for.
Acceptance is what changes its status
A purchase order is an offer when it is sent. It becomes an agreement when the supplier accepts, which they can do by confirming in writing or simply by performing, that is by shipping the goods. This is why sending an order and hearing nothing is an ambiguous position, and why a written acknowledgement is worth asking for on anything that matters.
Whose terms govern, when both sides have some
Your purchase order carries your terms and the supplier's acknowledgement often carries theirs. Where they conflict, US law does not simply prefer whichever was sent last, and the outcome depends on what each document says and how the parties behaved. The practical answer for a small business is to read the acknowledgement rather than to file it.
What this means for a small business, practically
Put the terms you care about on the order rather than assuming them: price, quantity, delivery date, payment terms and who pays for shipping. On the worked example the order is $827.21 including $75 of shipping, and stating that on the document is what prevents a delivery charge appearing later as though it had always been extra.
Questions people ask about contract purchase order
Is a purchase order a contract?
It is an offer that becomes a binding agreement when the supplier accepts it, by acknowledging it or by performing. General information, not legal advice: your own terms and your state's law decide.
What is the difference between a purchase order and a contract?
A contract is negotiated and signed by both parties up front. A purchase order is issued by the buyer and accepted by conduct or confirmation. Many businesses use orders drawn against a contract signed separately.
Do we need a signature on a purchase order?
Not usually for it to be effective, but a written acknowledgement from the supplier removes the ambiguity about whether they accepted, and is worth having on anything of significant value.