Difference Between Purchase Order and Invoice

Starting a business is a significant step, but managing and arranging it with all of the procedures and activities takes a lot of time and effort. The recording of the purchase, shipment, and delivery are the primary phases that should be closely followed when building a business among people. Here is the difference between a purchase order and an invoice, two of the key processes that assist a corporation in monitoring and classifying.

Purchase Order Vs Invoice

The main difference between a purchase order and an invoice is that a purchase order is when a buyer delivers a formal document to a seller to regulate and trace the purchasing process. An invoice, on the other hand, is when the seller provides a formal request for payment to the customer once the order has been completed.

Purchase Order Vs Invoice

When a vendor accepts a purchase order, a legally binding contract is formed. Previously, a purchase order was a formal agreement for tracking and controlling the purchase process laid by a buyer to a seller. A purchase order specifies the items and services that a customer wishes to purchase, as well as the agreed-upon rates.

An invoice is a list that specifies the amount of money owed and mentions the goods and services that have been delivered. It is a formal charge sent by the seller to its buyer once the order is completed. An invoice mainly contains the payment date and schedule, total amount owed, vendor information, available credits, and discounts.

Comparison Table Between Purchase Order and Invoice

Parameters of Comparison Purchase OrderInvoice
MeaningThe purchase order is the buyer’s order acknowledgment to the seller.The invoice is the payment notice that the supplier provides to the purchaser.
ProduceWhen a purchaser places an order, a purchase order is produced.After the order is completed, an invoice is produced.
PurposeA purchase order enables inventory tracking simple.Invoices aid in the assessment of expenditures and taxes.
CauseA purchase order protects inventory from becoming overstocked.Overpayments and repeated payments are avoided by using an invoice.
DefineA purchase order specifies the terms of a transaction.The invoice specifies the sale confirmation.

What Is Purchase Order?

A purchase order is a detailed framework that specifies the services and goods that the buyer intends to purchase from a provider. The buyer completes the purchase order and submits it to the seller. A proper purchase order form leaves no opportunity for interpretation because it completely specifies what both parties need to know about the items being acquired, including payment terms.

To further understand, consider an XYZ company’s office administrator, who ensures that the enterprise always has enough office supplies. The administrator submits a purchase order to their supervisor, and if the manager approves, the administrator sends the completed documentation to an office supply vendor to begin the acquisition process, as well as to XYZ organization’s finance department to account for this purchase in advance.

Purchase orders are a formal means for all parties engaged in the acquisition process to define the procedure. Since everyone’s intentions are clear, the purchase order serves as a guideline to clear up any miscommunication. Purchase orders allow companies to maintain a record of their spending. Having access to purchase orders boosts a company’s budgeting since the financial department can organize in advance for future purchases rather than be caught off guard by the delivery of an unanticipated invoice.

What Is Invoice?

An invoice is a written agreement that asks for payment in return for products or facilities. For solitary practitioners, a chat with purchasing may be sufficient, as a full procurement process may not be necessary for billing. When a supplier sends an invoice, it contains the payment schedule and date, the total amount due, the name and price of the goods or service, any discounts, and the seller’s contact details.

To better understand, consider XYZ company sending a purchase order to an office supplies vendor (as explained in the preceding segment). The XYZ company’s finance department obtains the invoice and pays it on the particular date since they already had the purchase order and scheduled for the arrival of the invoice in advance. They confirm the invoice with the source purchase order and, consequently, have had no budgetary concerns to clear the transaction.

In most circumstances, the vendor would not be paid unless an invoice is sent first. The PO is not a payment request; rather, it notifies the supplier of what is required of them and, as a result, what will appear on the invoice.
Invoices detail the exact payment as well as the cause of the payment. Businesses can track and analyze expenses professionally with the use of this data. An invoice itself is not a legally enforceable contract, but when combined with other key aspects of a contract, it may become part of a legally enforceable contract.
In the event of an audit, invoices serve as evidence of precisely what the company paid for.

Main Differences Between Purchase Order and Invoice

  1. A purchase order is the customer’s order confirmation to the seller, whereas an invoice is the payment reminder sent by the supplier to the purchaser.
  2. After a buyer places an order, a purchase order is created, whereas when the order is fulfilled, an invoice is created.
  3. A purchase order simplifies inventory control, whereas invoices help with expense and tax calculation.
  4. A purchase order prevents inventories from becoming overstocked, but an invoice prevents overpayments and repeated payments.
  5. A purchase order describes the parameters of a transaction, whereas an invoice confirms the sale.
  6. Purchase orders include customer needs such as the characteristics of the product, quantity, and price, as well as other purchasing requirements. While an invoice contains information on the products sold, the quantity and rate authorised in the purchase order, revenue, the authorised purchase order number, and so on. 

Conclusion

A company’s growth and success are influenced by a variety of factors such as customer interactions, services, organisation, procurement, and so on. Purchase orders and invoices are the most crucial documents in any company’s procurement procedure. With their parallels and variances, the roles of these documents are crucial to comprehend.

In this ever-changing and competitive marketplace, a company must run smoothly while being focused and balanced.

An efficient and organized procuring system that makes use of digital purchase requisitions and automates invoice processing can be beneficial. Purchase orders and invoices are combined into a single stream using digital formats, reducing paperwork and miscommunications. 

References

  1. https://tfsweb.tamu.edu/uploadedFiles/TFSMain/Finance_and_Admin/Staff_Resources/Content/P700259.pdf
  2. https://link.springer.com/chapter/10.1007/978-1-4842-6794-3_12
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