The Difference between a Purchase Order and an Invoice

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THE DIFFERENCE BETWEEN A PURCHASE ORDER AN
INVOICE
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Scrutinizing and managing all the paperwork that
gets involved in to starting a business can be
perplexing. Purchase orders (POs) and invoices
are among that necessary paperwork you have to
deal with. While running a business, you might
have stumbled across one or both of these
documents.
Both these two are generally considered confused
financial terms, and both deal with the
communication and of terms of payment agreements.
In this post, well explain what these documents
are, the differences between them, and how they
can serve your business.
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What Is a Purchase Order?
Purchase order number
A purchase order (PO) is a document created by a
purchaser and sent to a vendor as an official
confirmation of an order. Its primary function is
to request a service or product without immediate
payment. It includes an itemized list of the
requested service or product that the vendor can
approve or refuse based on the availability. From
sellers viewpoint, a purchase order is a method
to offer credit to purchasers without risk, since
the purchaser is committed make payment after the
product or service is delivered. A purchase order
is a legally binding contract between a vendor
and a purchaser. In simple words, if you dont
have a purchase order, you dont have an order
from the customer.
Quantity purchased
Date of the purchase
List of Product or service being purchased
Specific brand names, SKUs, or model numbers
Price per unit
Delivery date and location
Buyers Billing address
Payment terms and conditions
Business name and address of both parties
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The Documentation
The Usage of a Purchase Order
Before order fulfillment, a PO validates that
both the purchaser and vendor are in agreement.
The purchase order demonstrate whats ordered and
at what time it should be delivered along with
the total amount due after the delivery is
completed.
Reference for Invoices
Getting timely payment is important for a
business and a purchase order number plays a
significant role in that. After the delivery, the
vendor usually send an invoice to the purchaser
detailing the purchase order number as reference
number. This reference number is used to match
the invoice with the purchase order. It also
guarantees that your invoice gets processed
quickly with lower risk of incorrect payments. It
also serves as a proof that products and services
were ordered.
Beyond initiating an order, a PO also fulfills
some additional functions including the
documentation between purchaser and vendor,
reference for invoices and inventory management.
The details of these functions are as follow

• The Documentation
• Reference for Invoices
• Manage Inventory

Manage Inventory
If youre managing purchase orders via
softwares, then you can better track your
inventory. A PO also assists in determining
inventory, and when a restock is required.
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What Is an Invoice?
An invoice is a document issue by the vendor to
the buyer for the collection of the delivery
made. The product or service details along with
the total amount due is listed on an invoice.
A basic invoice usually have three main sections
divided into invoice information, accounts
receivable and accounts payable. The details of
each section is as follows If youre sending
several invoices, the invoice Information
includes the invoice date, invoice number and
purchase order number. The accounts receivable
section provides information about the party that
is receiving payment including business name,
mailing address for payment and contact
information. The accounts payable includes the
customers information including name of contact
within company, customers business name and
customers billing address. The Itemized List of
Products or Services includes invoice number,
invoice date, payment terms, product or service
description, agreed price or hourly rate,
quantity or number of hours, shipping costs,
applicable discounts, applicable taxes, and
accepted modes of payment.
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Payment Collection
Tax Preparation
The Documentation
When joined with a PO, invoices also serve as
documentation between the purchaser and vendor
including the itemized list of product or service
delivered and the total amount due. The vendor
use invoice as a confirmation of transaction
fulfillment.
The main function of an invoice is to let
purchaser that its time to issue the payment.
The lives of most business owners are hectic, and
invoices serve as a reminder that the payment is
due after the delivery.
If you use an invoicing software, this can make
it easier to calculate business revenue for the
tax year. The same information can also be
helpful in tax preparation as well.
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The Differences
The Function
The Objective
The Timeline
The Confirmation
A purchase order is sent when the buyer wants to
make a purchase.
A purchase order is created to confirm a
transaction based upon the terms agreed by both
parties.
The objective of PO is to purchase specific
products or services from the seller.
The function of a purchase order is to indicate
that a buyer wants to buy something from a seller
An invoice is sent when the order is fulfilled
and payment is due from the customer.
An invoice is sent to confirm that the requested
order is fulfilled and payment is due.
Alternatively, the objective of invoice is to
request payment from the buyer.
After the purchase order is accepted and the
vendor fulfill the delivery, the vendor can send
an invoice to the buyer for payment collection.
A purchase order is created first. An invoice is
generated in response to a purchase order, but
only after the deliverables were received.
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Purchase orders and invoices are two important
documents for small businesses to initiate orders
and complete them. Understanding how these
documents functions establishes that buyer and
seller both understand the transaction agreement.
The Conclusion
Purchase orders are important from clarification
and disagreement prevention perspective, whereas
invoices are important from a legal perspective.
Both these documents contribute to the success of
your small business. Using online software to
generate, document, and send your purchase orders
and invoices will boost overall productivity.
Investing in paid purchase orders or invoicing
softwares can also assist in further optimizing
your business performance.
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