Difference Between A Purchase Order And An Invoice

While you’re starting out your own new business, especially when related to sale of physical goods, you need to catch up fast with the inside business terms.
At some really early point, you will come across two seemingly familiar terms: purchase order and invoice.

Purchase order and invoice are two mostly confused financial terms and they can often seem like synonyms. Both, purchase order and invoice are your commercial communication about goods and services. But their time of occurrence is different. Although they are quite similar, they have a few differences which must be understood clearly.

Purchase Order :-

Purchase order is a document indicating types, quantity of products and services being sold.
It details the items the buyer agrees to purchase for a certain price.
It also includes the payment terms, shipment, other associated terms and conditions.
The customer sometimes creates a standing PO.
The standing or blanket PO allows a company to order the same product multiple times using the same PO number over an extended purchase period.

Purpose and Importance Of PO :-

Purchase orders are typically used when a buyer wants to purchase supplies or inventory on account.
It is important as you and your team have instant visibility of incoming stock; how much is coming and when is it due to turn up.
A properly managed Purchase Order system will quickly tell you what’s been ordered, shipped and received but not invoiced and so on.
Besides that, creating POs in the system will help prevent ordering more of an item than you may need.
You can also match the delivered goods against what was ordered, to prevent wrong delivery.
Suppliers use PO’s to fulfil their orders and payment processing. An online invoicing software makes it easy to send purchase orders to vendors online, in pre-designed templates.

Invoice :-

Invoice is a document issued by a seller to a buyer indicating items sold, prices, date of shipment, delivery and payment terms.
It is also called as a “bill”, “statement” or “sales invoice”.
The term invoice indicates money the buyer owes to a seller.
The invoice is also specified with the period of time after which the buyer has to make payment to the seller for the goods and services they have purchased.
Modern-day invoices are transmitted online.

Importance of An Invoice :-

Invoices are a great way to track your earnings, business and expenses.
It gives you the view of the sale of products for inventory management and to calculate the amount of profit made.
If invoices are utilized properly, they may act as a documentation for all your business transactions.
Invoice reports help you to show which orders are completed and paid for and total outstanding for the customers.
Besides that, you have complete financial control of your business and ongoing progress.
A suitable invoice management software is useful in creating and scheduling client invoices with ease.

There are different types of invoices, but every invoice usually include the following information:

• Date of invoice
• Seller’s name and address
• Buyer’s name and address
• Invoice number
• Purchase order number, if a PO was issued
• Product information
• Accurate prices
• Discounts/taxes
• Due amount
• terms and conditions
• Due date for payment

Key Differences :-

The purchase order is what the buyer prepares, while the invoice is what the seller makes in lieu of the payment to be received.
The products or services purchased/ordered by the buyer, while an invoice has, on it the price of the goods, products or services being sold along with term and conditions and due date.
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 order number which is additional on the invoice.

Invoicera lets you support both purchase order as well as invoices. The online invoicing software offers communication with both clients and vendors. Invoicera can convert the purchase orders into the invoices according to need.

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Veronika Tondon is a business enthusiast with extensive experience in Invoicing & Payment Process. She has 6+ years of experience in Invoicera, the leading cloud-based invoicing solution as Invoicing Consultant. Sound knowledge in business process execution, offers end to end solutions for complete automation of business processes and AR/AP processes. Contact Veronica for your invoicing requirement.