All businesses broadly involve two parties, the buyer and the seller. A buyer, as it is self explanatory, is the one who is looking for goods, products or services which are available in exchange for money. While the seller is the one who is offering these goods, products or services.
In order to understand what is the basic difference between a purchase order and an invoice lets take an example. Suppose Diva Textiles is the seller who sells all sorts of clothes in bulk. Enter Tom. Tom is a buyer and wants to buy clothes in a large volume. Now Tom will have to make a purchase order and in return, Diva textiles will give him an invoice of the amount in order to get paid.
Purchase orders and invoices are the processes which help to keep a track of inventory and sales involved in a business. Be it selling on a small scale or a large scale, keeping a record of following is really important.
- Who is buying?
- Who is to be charged for the sale?
- What are they buying?
- How much is it?
- When is it due for delivery?
There are 3 basic difference between a Purchase Order and an Invoice:
- The purchase order is what the buyer prepares, while the invoice is what the seller makes in lieu of the payment receivable.
- The purchase order lists the quantity and the due date of delivery of goods, products or services purchased/ordered by the buyer, while an invoice has on it the price of the goods, products or services being sold.
- Both, purchase order and invoice have the same details except the technical mention for records viz.a.viz the shipping details, invoice number and purchase orders number which is additional on the invoice.
So in this case, the purchase order is what Tom will send while the invoice is what Diva Textiles will provide Tom in accordance with his purchase. So without the purchase order, no invoices can be generated as it explains and mentions the details of the goods, products or service. These are in terms of quantity, price, due date and most importantly payment terms.
While on the other hand Tom also needs to know how much the purchase costs him. Because it is a bulk purchase, the Invoice would help him cross check whether he has received what he has ordered.
In a gist, the purchase order is the communication from the buyer that is, Tom in this case, to the seller that is Diva Textiles. While the invoice is the response from Diva Textiles (seller) to Tom (buyer).