Purchase orders and invoices might seem similar, but they are two vastly different documents with separate uses. A purchase order is used by a person who sells, and an invoice is used by a customer requesting a payment.
What is the Difference Between a Purchase Order and an Invoice?
Both financially important instruments, a purchase order, and invoice are documents that every financial sector deals with every day. It’s essential to know that they aren’t the same thing even though they share similar content in the document. Here’s a table that better explains the differences between an invoice and a purchase order:
| Key information | Purchase Order | Invoice |
| The Purpose | A confirmation of an order | Request for payment for an order |
| The Sender | Buyer | Vendor |
| The Receiver | Vendor | Buyer |
| Sending Time | Just after placing an order | After an order is complete |
The Details | Date of purchase, name of buying company, price, shipping address, etc. | Vendor content details, payment schedule, applicable discounts, etc. |
What is an Invoice?
A vendor’s invoice is an official request for payment sent to the buyer after the order is complete. It specifies the amount of money that the buyer owes for the goods or services the vendor has provided.
Say you’re a cup noodle supplier and you get a purchase order for 300 cups from a local store. When you send your products to the buyer, you will include an invoice that contains details on the number of goods, the price, payment terms, and more.
Why is an invoice crucial?
When it comes to purchase orders and invoices, both are equally crucial to your businesses. Since they both serve different purposes, here’s where an invoice comes in handy:
- Collecting money from buyers — When dealing with payments and orders, you must send an invoice in order to collect money from your clients.
- Providing visibility to the business — Accounting departments can track the purchases made by different departments and make projections for cash flows with the help of invoices. This is because invoices show what you’re selling, how much, to whom, and how much cash you’re receiving.
- Creating a paper trail — Another key benefit of invoices is that they create a paper trail between a buyer and a seller. Receiving, sending, and settling invoices demonstrate communication between parties while keeping your business dealings transparent due.
When should you use an invoice?
A vendor issues an invoice after a customer receives the goods or services. Vendors use invoices for regular account-based transactions with buyers. Moreover, businesses use invoices to create sales agreements with their customers.
Invoices function as a way for small businesses to ensure they are paid on time for the services they provide by stating the amount owed, the payment terms, the due date, and a list of services.
What information should an invoice include?
Invoice information is fixed. It includes a couple of things that are the same no matter the kind of business you are. Below are the main details of an invoice:
- Invoice date
- Unique invoice number
- PO number
- Item/service descriptions
- Per unit price
- Terms of payment
- Discounts and taxes(if relevant)
- Total amount
- Invoice due date
- Acceptable payment methods
- Business name and contact of both parties
- Seller’s signature
What is a Purchase Order?
A purchase order, also known as PO, is an official document that a buyer sends to a seller after receiving their products or services. POs describe what the order should include, the date of delivery, the price, and more. Initially, the buyer needs to send a purchase order to the seller to approve it. After approval, the purchase order becomes a legally binding document. Here’s how it works:
- The vendor creates a purchase order describing exactly what they need from the supplier.
- If the supplier can fill the order, they’ll accept the PO, fulfill it, and distribute the items on a previously-agreed due date.
- The supplier sends an invoice for the purchased goods and then the buyer pays for them.
What is a purchase order number?
A purchase order number is a unique reference number on every purchase order. Its main purpose is to ensure that the buyer gets and the seller delivers the same goods or services. With the help of the purchase order number, it’s also a lot easier to match purchase order invoice.
Why is a purchase order crucial?
Much like an invoice, a purchase order is crucial to any business as it can provide a business with important information. Here’s why a PO is useful:
- Makes tracking of a product easier — By referencing a purchase order number, tracking products and services is a cakewalk.
- Facilitates the invoicing process for the seller — By referencing the purchase order number in the invoice, it makes sure that the same products are in question.
- Set clear expectations — A purchase order clarifies your requirements from day one, that way your vendor knows what to expect.
- Avoid duplication of requests — When there are a lot of order requests, POs help to keep track of who purchased what, when, and other useful details. This way, you avoid duplicate requests as much as possible.
When should you use a purchase order?
When talking about invoice vs purchase order, it’s evident that they’re both used in different situations. In order to fulfill orders and process payments, buyers often use purchase orders to purchase supplies or inventory. Additionally, buyers create a purchase order before an invoice since its purpose is to define the terms of the contract.
What information should a purchase order include?
The purchase order includes the following information:
- Date of purchase
- Purchase order number
- Description
- Price per unit
- Delivery date
- Buyer’s name and address
- Vendor’s name and address
- Terms and conditions
- Signature of the issuer
What are the Similarities Between a Purchase Order and an Invoice?
While there’s a definite difference between a purchase order and invoice, they also share a few similarities. In many cases, the PO and invoice are both referencing the same item. Both documents also include some of the same information about the buyer and seller, such as business names, contacts, and mailing addresses.
Moreover, both POs and invoices are legally enforceable contracts. Upon the receipt and preparation of that good or service, the participating parties must follow the agreement.
Does Your Business Need Both Invoices and Purchase Orders?
No matter what kind of business you have, you might already use both of these documents. When you need to purchase something, you can use a purchase order to track expenses, even if the bulk of your business is providing goods or services (in which case you’re already sending invoices).
Finding the Right Online Invoicing Solution
There are many invoicing software solutions on the market. To choose the right one for you, go through the functionality of each software. Useful features include a vast range of payment methods, activity tracking, payment reminders, and recurring payments.
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