Purchase Orders and Invoices: What's the difference?
Written by Paul Morton
Paul Weller sang the immortal line ‘what you give is what you get’ and he was right. Life is all about inputs and outputs, what you bring to the table and what you take. This applies equally to business. You need to stay on top of both your income and your expenditure. To keep track of these things you need two documents, namely purchase orders and invoices.
It’s important to know the difference between purchase orders and invoices as they represent distinct parts of this process. The buyer prepares a purchase order to initiate the sale. It shows your intention to buy from the supplier. You create it so that you have a record of buying ‘x’ amount of ‘y’ from the supplier at a set price.
The seller issues an invoice upon or near completion of the job. They are confirming that they have supplied ‘x’ amount of ‘y’ for the agreed price as set out by the purchase order. They then set the date that they expect payment for the services rendered.
At first glance, these documents say the same thing. They both relate to an agreement between you and a supplier or buyer. Some of the information they have in common includes:
A reference to the items or service purchased
The address and contact information of each party
However, despite these similarities there are some important differences between a purchase order and an invoice. For example, although they both contain details of the transaction there is information that you can only find on one document or the other:
The Purchase Order
Purchase orders are documents that mark the creation of a contract. It has all the information regarding the terms of delivery and the price. Crucially, it can also contain pre-requisites that both parties have agreed to prior to the formation of a contract. This can range from something as simple as agreeing that the supplier will deliver the product by truck to more complex delivery patterns over a period.
Unlike a purchase order, the invoice marks the confirmation of sale and the closing stage of the transaction. It focuses on the remuneration of the supplier. An invoice has the conditions of payment (e.g by cash or direct debit) and shows who the buyer pays. It indicates the amount owed to the supplier and specifies the date by which the supplier requires payment. Upon payment, the contract is complete and suppliers usually mark the document as paid.
Keeping track of financial movements is vital to maintaining a healthy business. When buying or selling, you need to know the difference between purchase orders and invoices to ensure you stay on top of your financial records. It’s not enough to just run your business; you need to know it, too.