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Have you ever been confused by the purpose of a purchase order versus an invoice? They both contain important details about a business transaction, but when exactly are they used?
Whether you’re a seasoned business owner or just starting out, this guide will outline the differences between purchase orders and invoices, empowering you to navigate them with confidence.
Key takeaways
- A purchase order is a buyer’s commitment to a seller.
- An invoice is a bill sent by the seller after fulfilling the order.
- A purchase order helps ensure everyone’s on the same page about an agreement before a purchase.
- Invoices ensure clear communication about what payment is due for a completed order.
Zoho Invoice is an online invoicing software built to help small businesses.
What is a purchase order?
A purchase order, often shortened to PO, is like a formal agreement between a buyer and a seller.
You can see it as a written confirmation that you (the buyer) intend to purchase something from a seller (the store), outlining all the important details.
This document includes information about both you and the seller, such as company names and contact details.
It’ll also clearly detail what you’re buying. This includes a breakdown of the products or services you’re ordering, specifying the exact quantities and prices you’ve agreed upon.
To ensure smooth delivery, the PO will also typically specify where you want the items sent and by what date.
And to avoid any confusion about payment, the purchase order will outline the terms of payment, which could be something like “net 30 days” meaning you’ll pay the seller within 30 days of receiving the order.
What is an invoice?
Remember the PO where you, the buyer, confirm your intent to purchase something from a seller at an agreed-upon price?
An invoice comes into play after the seller has fulfilled that order. It’s essentially a bill sent by the seller to you, the buyer, requesting payment for the completed transaction.
An invoice typically includes seller information, buyer information, order details (like the purchase order number), total amount due, item breakdown, and payment terms.
Key differences between purchase order vs. invoice
Let’s break down the key differences between purchase order and invoice:
| Feature | Purchase Order | Invoice |
|---|---|---|
| Timing | Issued before buying | Issued after seller fulfills order |
| Purpose | Confirms intent to buy, details agreement | Requests payment for a completed transaction |
| Seller information | Included | Included |
| Buyer information | Often included | Included |
| Item breakdown | Lists products/services, quantities, prices | Lists products/services, quantities, prices (may include more details) |
| Additional charges | Not typically included | May include sales tax, shipping fees |
The bottom line
We’ve explored the key differences between purchase orders and invoices, and hopefully, now you have a better understanding of these two concepts.
So, go forth and put your knowledge to work to streamline your business transactions or ensure a smooth purchase.
FAQs
Can I send an invoice without a purchase order?
Yes, you can often send an invoice even without a purchase order. It’s best practice, but not always required.
Why do businesses need to use both purchase orders and invoices?
Businesses use both POs and invoices to improve clarity and avoid confusion.
Why is a purchase order important?
Purchase orders are important because they lock in the agreement between buyer and seller before a purchase.
This helps avoid misunderstandings about what’s being bought (items, quantities, prices).
Zoho Invoice is an online invoicing software built to help small businesses.