# Purchase Order vs Invoice: Understanding the Differences

**Tori Katz**  
*December 9, 2021*

## Table of Contents

- [What’s a Purchase Order?](#what%E2%80%99s-a-purchase-order?)
- [What Information Does a PO Include?](#what-information-does-a-po-include?)
- [What’s an Invoice?](#what%E2%80%99s-an-invoice?)
- [What Information Does an Invoice Include?](#what-information-does-an-invoice-include?)
- [Differences Between PO and Invoice](#differences-between-po-and-invoice)
- [Benefits of Purchase Orders](#benefits-of-purchase-orders)
- [Benefits of Invoices](#benefits-of-invoices)
- [Best Practices for Purchase Orders](#best-practices-for-purchase-orders)
- [Best Practices for Invoices](#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.