Purchase Order vs Invoice: Understanding the Differences

Tori Katz
December 9, 2021

Table of Contents

• What’s a Purchase Order?
• What Information Does a PO Include?
• What’s an Invoice?
• What Information Does an Invoice Include?
• Differences Between PO and Invoice
• Benefits of Purchase Orders
• Benefits of Invoices
• Best Practices for Purchase Orders
• Best Practices for Invoices

What’s a Purchase Order?

A purchase order (PO) is a document businesses create and send to a vendor when they want to buy something. This document serves as an official outline of what the business is acquiring, along with critical expectations, like delivery timelines.

What Information Does a PO Include?

• Purchase order number: A code for identification.
• Date: The date the PO was issued.
• Buyer and seller details: Names of both parties involved.
• Item description: The exact description of what is being purchased.

What’s an Invoice?

An invoice is the document that the supplier sends to the buyer after the order has been fulfilled, requesting payment.

What Information Does an Invoice Include?

• Invoice number: A unique identifier for the invoice.
• Date: The date of issuance.
• Buyer and seller details: Names and relevant details of the parties involved.
• Item description: What has been purchased and delivered.
• Payment terms: The amount due and expected payment date.

Differences Between PO and Invoice

• Who creates it? A purchase order is created by the business, while the invoice is created by the vendor.
• Purpose A PO is an order form that tracks needs, while an invoice is a request for payment after goods or services are delivered.
• Timeline A PO is sent before the purchase, and an invoice is created once the order is completed.
• Use A purchase order helps track requests, and the invoice serves as a record of financial obligations.

Benefits of Purchase Orders

• Organization: Provides a written record of orders, reducing misunderstandings.
• Budget control: Helps track spending against approved purchases, preventing overspending.
• Legal contract: Serves as a formal agreement providing legal protection.

Benefits of Invoices

• Tracks payments: Maintains records of what is owed and aids in cash flow management.
• Records: Essential for bookkeeping and financial statements.
• Compliance: Important for tax purposes.
• Better supplier relationships: Timely payments foster positive supplier relationships.

Best Practices for Purchase Orders

• Template: Use a consistent purchase order template.
• Automate: Automation reduces errors and saves time.
• Approval workflow: Implement a simple approval workflow to ensure proper notifications.
• Communicate: Maintain open communication with suppliers about any changes.

Best Practices for Invoices

• Be on time: Send invoices promptly after delivery.
• Use clear terms: Ensure invoices are clear and complete.
• Follow up: Remind for overdue payments.
• Automate invoice management: Consider invoicing software for efficiency.