Purchase Order vs. Invoice

Purchase Order vs. Invoice: What Are the Differences?

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You can’t run a successful business without keeping track of your payments and how much you both owe to suppliers, and how much your customers owe you. Without the aid of well-kept purchase orders and invoices, you’re (financially) lost at sea.

If you’re unfamiliar with the procurement process and the nuances of purchase order vs. invoice, it might be difficult to tell the difference between a purchase order and an invoice. There are many different definitions of what each step entails, even between members of the procurement team.

Making the mistake of skimming through crucial financial papers without familiarity with common procurement words might have a severe influence on your organization’s spending. If you don’t understand the procurement procedure, you can’t afford to do so. Keep on reading for our full breakdown of the differences and similarities between a purchase order and an invoice. 

What Is a Purchase Order?

It’s a document that specifies the goods and services to be purchased.

Upon placing goods or services, a buyer would typically submit a purchase order (PO) to the vendor. Purchasing orders (POs) outline the contents of the order and the delivery date and price.

Before the purchase agreement is signed, some POs contain preconditions that the buyer and seller have agreed upon. In addition to air freighting a specified number of goods and commodities, these may include employing a different payment method when ordering.

A legally binding contract is created when the seller accepts the purchase order agreement.

Standing purchase orders may also be used by buyers to make repeat purchases. With a standing PO, they may place many orders for the same goods or services over an extended period, all using the same PO number.

The ordering party may also create a blanket purchase order to acquire several deliveries at the same price and for the same length of time. Blanket purchase orders are often used in business-to-business transactions, and they may contain discounts or other enticements.

A purchase order typically contains the following:

  • PO number
  • Buyer details
  • Date of purchase
  • Payment terms
  • Order information
  • Delivery address

Let’s see what the PO number is all about.

What Is a Purchase Order (PO) Number?

For every purchase order, it comes with a unique PO number. That way, the buyer knows exactly what to anticipate from the vendor.

It is also easy to connect invoices with purchase orders because of the purchase order number. The vendor may charge the correct cost for the items when the number is included on the invoices they send to buyers. The buyer may also use the invoice reference number to verify that they’re paying for the correct order by comparing it to their PO number.

What Is an Invoice?

Customers get an invoice from the seller after their purchase has been completed, which serves as an official notice of payment due. You’ll get a breakdown of what you provided and how much money is still owing in it.

Invoices often include the following information: invoice number, vendor information, credits/discounts available, payment schedule/date, and total amount due.

Purchase Order vs. Invoice: Understanding the Differences

Objective vs. aim distinctions is a critical aspect in comparing these two papers. For your suppliers to fulfill your order, you need to send them a purchase order. It is a payment request when you send an invoice.

The primary objective of a PO is to guarantee that your customers fulfilled your orders. On the other hand, you’ll send an invoice to collect payment for goods or services.

Timing is another point of distinction. To formalize the contract between the parties, a purchase order is often delivered at the outset of the transaction. On the other hand, invoices are provided after the completion of the trade and seek payment using the data from the purchase order.

As opposed to an invoice, a purchase order includes the following information. An order’s PO consists of the order’s specifics, the agreed-upon price, and a delivery date estimate. On the other hand, an invoice specifies payment conditions, applicable discounts, and the total amount owed.

Similarities Between Purchase Orders and Invoices

Invoices and purchase orders have many similarities. The buyer and seller’s contact information and their postal addresses are present in both agreements. It’s not uncommon to have a PO and an invoice related to the same product or service.

It is crucial to note that POs and invoices are legal contracts. One party must provide the commodity or service, and the other needs to pay for it according to the previously agreed upon agreement.

What’s the Use of Having Both Documents?

To put it another way, the nature of business necessitates that you both order and give these papers at some time.

Purchase orders help keep track of your company’s expenditures, even if your company primarily provides goods or services (and thus sends out invoices).

Issuing Purchase Orders and Invoices: Going Digital

It’s not difficult to read and utilize purchase orders and invoices. However, even if you are using an invoice template, manually preparing many of these documents may be time-consuming and error-prone. There is also the risk that handwritten records might get disorganized or even vanish, which can cause issues in disputes or audits.

Digital PO and invoicing, on the other hand, eliminate the need for time-consuming paper-based procedures. Ink, paper, envelopes, and stamps are all taken care of for you. A photocopy of the paperwork isn’t necessary, which might save you money if you’re sending out many purchase orders. A digital solution like this best invoicing software saves money, is more secure, and is more straightforward to use than traditional methods.

Comparing Purchase Orders and Invoices

For those new to the wide world of accounting and bookkeeping, trying to figure out which documents are essential can be overwhelming. We hope that our guide has shed some light on the subject of purchase order vs. invoice

But, you can’t build your financial knowledge in a day. Check out our finance and business sections for our other explainers and guides.  

Also Read: Hacks to Manufacturing Inventory Management

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