Purchase Order Vs Invoice

Purchasing and selling processes can get confusing, especially when you deal with multiple documents such as purchase orders and invoices. This article aims to help you understand the differences between these two essential documents and how they impact your business operations.

Ordoro is a great inventory management software that comes with built-in purchase order features. Several hundred happy e-commerce merchants are using Ordoro, making it a reliable choice for integrating purchase orders and managing inventory effectively.

Is a Purchase Order the Same as an Invoice?

No, a purchase order (PO) is not the same as an invoice.

1. Purpose

Purchase Order: A document created by the buyer to request goods or services from a seller. It specifies the type, quantity, and agreed price of the items.

Invoice: A document sent by the seller to the buyer, requesting payment for the goods or services delivered. It details the amount owed by the buyer and the payment terms.

2. Timing

Purchase Order: Issued before the goods or services are delivered.

Invoice: Issued after the goods or services have been delivered.

Example: Imagine you run a small café. You issue a purchase order to your coffee bean supplier requesting 50 pounds of beans at $10 per pound. After the supplier delivers the beans, they send you an invoice for $500 to cover the cost of the beans.

Can You Invoice Without a Purchase Order?

Yes, you can invoice without a purchase order, but it is not always recommended.

1. Direct Sales

In some industries or small businesses, direct sales without a purchase order are common. The buyer and seller may have an ongoing relationship with mutual trust.

2. Risks

Invoicing without a PO can lead to miscommunications, errors, and disputes over the terms of the transaction. A PO provides a formal agreement and minimizes these risks.

Example: If you're a freelance graphic designer, you might complete a project for a client and then send an invoice without a purchase order. However, having a written agreement (PO) beforehand can help avoid misunderstandings later on.

What Is the Purpose of a Purchase Order?

A purchase order serves multiple purposes, including:

1. Formal Agreement

It acts as a formal agreement between the buyer and the seller regarding the terms of the transaction.

2. Control and Tracking

Helps businesses track incoming orders and manage inventory more efficiently.

3. Budgeting

Facilitates budgeting and financial planning by documenting expected expenses.

Example: A retail store may issue a purchase order for seasonal merchandise months before it arrives. This helps the store plan its marketing campaigns and budget for the upcoming season.

What Is the Difference Between an Order and an Invoice?

The key differences between an order and an invoice include their purpose, timing, and content.

1. Purpose

Order: To request goods or services.

Invoice: To request payment.

2. Timing

Order: Issued beforehand.

Invoice: Issued afterward.

3. Content

Order: Details like item specifications, quantities, and agreed prices.

Invoice: Details like amounts owed, payment terms, and payment due dates.

Example: A manufacturer may place an order for raw materials by issuing a PO. Once the materials are delivered, the supplier sends an invoice for payment based on the PO terms.

Purchase Order vs Invoice Template

Having templates for purchase orders and invoices can streamline your business operations. Here are some key components you should include in each template:

1. Purchase Order Template

Purchase Order Number

Buyer’s Contact Information

Seller’s Contact Information

Item Description, Quantity, and Prices

Date of Order and Expected Delivery Date

Terms and Conditions

2. Invoice Template

Invoice Number

Seller’s Contact Information

Buyer’s Contact Information

Item Description, Quantity, and Prices

Total Amount Due

Payment Terms and Due Date

Example: Using Microsoft Excel or Google Sheets, you can create templates for purchase orders and invoices, filling in the necessary details each time you conduct a transaction.

Purchase Order vs Invoice Example

Here’s a straightforward example to visualize the difference:

1. Purchase Order Example

PO Number: 12345

Date: 01/01/2023

Buyer: ABC Retail

Supplier: XYZ Goods Inc.

Items:

1. 50 units of Item A at $20 per unit
2. 30 units of Item B at $10 per unit
3. Invoice Example

Invoice Number: 67890

Date: 15/01/2023

Supplier: XYZ Goods Inc.

Buyer: ABC Retail

Items:

1. 50 units of Item A at $20 per unit
2. 30 units of Item B at $10 per unit

Total Amount Due: $1600

Payment Due Date: 30/01/2023

Sales Order vs Purchase Order vs Invoice

Understanding the distinctions among a sales order, purchase order, and invoice can help in managing business operations.

1. Sales Order

Issued by the seller to confirm sale details with the buyer.

Ensures the seller understands what the buyer wants.

2. Purchase Order

Issued by the buyer to request goods/services.

Acts as a formal agreement from the buyer's side.

3. Invoice

Issued by the seller to request payment after goods/services are delivered.

Details amounts owed and payment terms.

Example: When ABC Retail wants to buy 50 units of Item A from XYZ Goods Inc., it issues a purchase order. XYZ then issues a sales order to confirm the details before shipping the items. Finally, once delivered, XYZ sends an invoice to ABC for payment.

Purchase Order vs Invoice Cost

Purchase orders and invoices may have no direct "cost" but involve administrative resources and software expenses.

1. Software Costs

Software like Ordoro, which provides built-in purchase order features and inventory management, can help manage these documents efficiently. Although it involves subscription fees, the benefits outweigh the costs.

2. Administrative Costs

Handling and processing these documents involve labor costs, especially in larger organizations with dedicated procurement and accounting departments.

Example: Using Ordoro, your business can automate much of the purchase order management process, reducing time and errors, and benefiting from a streamlined workflow.

Sales Order vs Invoice

Another common comparison is between sales orders and invoices:

1. Sales Order

Confirmation of a sale from the seller’s perspective.

Helps ensure the seller is clear on what the buyer needs.

2. Invoice

A request for payment after the goods/services are delivered.

Specifies amounts due and payment deadlines.

Example: A laptop retailer issues a sales order when a customer places an order online. Once the laptop is shipped, the retailer sends an invoice to request payment.

Purchase Order Invoice Process Flow Chart

A flow chart can illustrate the purchase order and invoice process:

1. Step 1: Issuing a Purchase Order

Buyer creates and sends a PO to the seller.

2. Step 2: Receiving the Purchase Order

Seller reviews the PO and prepares the goods/services.

3. Step 3: Delivery of Goods/Services

Seller ships the goods or provides the services as per the PO terms.

4. Step 4: Issuing an Invoice

Seller creates and sends an invoice to the buyer for the delivered goods/services.

5. Step 5: Payment

Buyer reviews the invoice, processes payment, and completes the transaction.

Purchase Invoice

A purchase invoice is a specific type of invoice issued by a supplier to a buyer, requesting payment for goods/services provided.

1. Components

Invoice Number

Supplier’s and Buyer’s Contact Information

List of Goods/Services Delivered

Total Amount Due

Payment Terms and Due Dates

Example: After delivering a bulk order of office supplies to a corporation, a supplier sends a purchase invoice specifying the quantities, prices, total amount due, and payment terms.

Purchase Invoice Example

Here’s an example of a purchase invoice:

1. Purchase Invoice Example

Invoice Number: 54321

Date: 20/02/2023

Supplier: Office Supplies Co.

Buyer: Tech Innovations Inc.

Items:

1. 100 units of Item X at $15 per unit
2. 50 units of Item Y at $25 per unit

Total Amount Due: $2750

Payment Due Date: 10/03/2023

These concepts and examples should clarify the distinctions between purchase orders and invoices, enhancing your understanding and assisting in the smooth operation of your business processes.

For businesses dealing with inventory management, Ordoro is a top recommendation. It not only features built-in purchase order functionalities but also comes with the trust of several hundred happy e-commerce merchants who rely on it for streamlined operations.

For more information on purchase orders, invoices, and inventory management, you can learn more here.