Purchase Order versus Invoice

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08 min read

Invoice is different from a purchase order. Every business must maintain a proper documentation system as any delay may lead to fines and penalties. They should have a repository of documents so that any document can be retrieved as and when needed.

What is a purchase order?

A purchase order (PO) is a document the buyer uses to place an order mentioning the goods required, delivery date, price and other terms and conditions. Once the vendor accepts a PO, it becomes a legally binding document that specifies the type of goods, price, delivery date and payment terms. 

Benefits of using purchase orders

  • POs specify the purchaser’s needs and thus set clear expectations for the vendor.
  • Once a PO is created, a purchaser can look into its budget and spend wisely.
  • A PO, once accepted by the vendor, becomes a legally binding document. It gives legal protection.
  • POs also form part of audit trails. 

What is an invoice?

An invoice is created by the vendor for goods sold. It reflects the type of goods sold and the amount due from the buyer, and the due date of payment. Below is a sample tax invoice:

invoice

Benefits of using invoices

  • Invoices enable the vendors to collect money. It is sent to the buyer requesting payment for goods sold.
  • It serves as a legal document and helps in financial reporting. 
  • Like POs, invoices also form part of the audit trail.
  • It helps in generating various financial reports and projecting future cash flows.

Comparison between purchase order and invoicing

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CriteriaPurchase orderInvoice
CreationIt is created by the purchaser of goods.It is created by the vendor.
ContentsIt contains client expectations such as the nature of product, quantity and price, and other terms of procurement.It contains details of products sold, quantity and rate as approved in the purchase order, tax, approved purchase order number, etc.
PurposeThe purchaser sends a purchase order to the vendor to place an order for goods/services.The vendor sends an invoice to the purchaser to request payment for the order placed.