An invoice is one of the most important business documents. It is a statement of goods or services that have been provided and paid for by the recipient. On the other hand, a purchase order (PO) is an order placed by a customer with a supplier requesting that they provide particular goods or services. To provide a better understanding of the core difference between purchase order and invoice, we will discuss the following topics:
What is a Purchase Order
A purchase order (PO) is a type of order form for goods or services that is typically used in business-to-business transactions, generally issued by a buyer to a supplier for ordering commodities/goods. They are generally used to control spending by authorizing suppliers to provide goods or services up to a certain dollar value. The PO also helps the buyer keep track of what has been ordered, from whom it was ordered, and how much it should cost.
Moreover, when a buyer places an order with a supplier, they will usually send a PO along with the order. The PO will list the items being ordered, as well as the quantities and prices. The supplier will then use the PO to fill the order and send an invoice to the buyer for payment.
While POs are not always required, they can be helpful in ensuring that orders are processed correctly and that payments are made on time.
Why Use a Purchase Order?
- There are many reasons why businesses use purchase orders (POs), but the main reason is to have a formal record of what was ordered, by whom, and for how much.
- A PO also helps businesses keep track of their spending, which can be helpful in budgeting and forecasting.
- Additionally, POs can help businesses manage their inventory levels and ensure that they have enough products on hand to meet customer demand
What is an Invoice
An invoice is a document that a seller issues to a buyer. It shows the items purchased, the quantities, the prices, any discounts, and the total amount due. The invoice also shows the date of purchase and the terms of payment. An invoice can be created in paper or electronic form. Moreover, an invoice is typically issued after an order has been filled, and it itemizes the products or services that were provided, along with the prices charged.
Why Use an Invoice?
- Invoices are important for both buyers and sellers. Invoices also help buyers keep track of what they have purchased and when they purchased it.
- They create a record of the transaction that can be used for accounting purposes and tax records.
- For sellers, invoices can be used to track inventory levels and measure customer satisfaction.
Purchase Order Vs Invoice(Comparison Table)
|Basis For Difference||Purchase Order||Invoice|
|Definition||A commercial instrument that can be used in business-to-business transactions, generally issued by a buyer to a supplier for ordering goods and services.||It refers to a commercial document that contains information about what has been ordered and how much it will cost.|
|Issued By||Buyer to seller||Seller to buyer|
|Purpose||To define the terms of purchase||To define the confirmation of the sale|
|Benefit||It helps buyers to track inventory||Create a record of the transaction that can be used for accounting purposes and tax records.|
|Created When||The buyer wants to place an order||The order is fulfilled by the supplier|
Key Differences Between Purchase Order And Invoice
There are a few key differences between purchase orders and invoices that you should be aware of. They are given as follows.
- The main difference between a purchase order and an invoice is that a purchase order is issued before goods are delivered, while an invoice is issued after goods have been delivered.
- A purchase order is issued by the buyer to the seller for the purpose of placing an order. On the other hand, the invoice is issued by the seller to the buyer for the purpose of receiving payment.
- While purchase orders are typically used for larger purchases, invoices can be used for both small and large purchases.
- Purchase orders are used to record accounts receivable. On the other hand, invoices are used to record accounts payable.
- Purchase orders usually contain more detailed information about the products or services being ordered, while invoices generally just list the items along with the prices.
Following are the key points from this blog.
- So, when should you use a purchase order? If you want to create a formal record of orders and track your spending, then a purchase order is the way to go.
- On the other hand, if you simply need to request payment for goods or services that have already been provided, then an invoice will suffice.
- While invoices are also important documents, they serve different purposes. In contrast to a PO, an invoice is not a binding document; rather, it is simply a request for payment.
So to sum up this blog, we can say that a purchase order contains information about what is being ordered, while an invoice contains information about what has been ordered and how much it will cost. It’s important to keep track of both purchase orders and invoices so that you know what you’ve ordered and how much you owe for the goods or services you’ve received.