Difference Between Purchase Order and Invoice
Ever been confused between a purchase order and an invoice? Don’t worry—you’re not alone. These two business documents often get mixed up. But they serve totally different purposes in the world of buying and selling.
TL;DR: A purchase order (PO) is created by the buyer and sent to the seller to request goods or services. An invoice is created by the seller and sent to the buyer to request payment. Think of a PO as the “I want it,” and an invoice as the “Pay me for it.” They bookend the transaction—first comes the PO, then the invoice.
What Is a Purchase Order?
Let’s start with the purchase order—or PO, for short.
A PO is a document sent by a buyer to a seller saying, “Hey, I want to buy this!” It includes:
- Details of the items they want to buy
- Quantities
- Agreed prices
- Shipping address
- Date the goods should arrive
In short, a purchase order is a buyer’s way of putting their wants in writing.
Once the seller receives the PO, they can accept it, prepare the goods, and send them out.
Why Do Businesses Use POs?
POs make life easier. Here’s how:
- They keep records. Everyone knows what was ordered and when.
- They set expectations. Quantity, price, and delivery date are all clear.
- They avoid confusion. It’s a clear snapshot of what the buyer wants.
- They help accounting. Matching POs with invoices simplifies bookkeeping.
What Is an Invoice?
An invoice comes after the PO. It’s created by the seller.
It’s a bill. Yup, the “Please pay me” document.
An invoice includes:
- Name of the seller and buyer
- Items delivered
- Amount due
- Payment terms (when to pay, how to pay)
- Invoice number for tracking
The invoice is what kicks off the payment process.
Invoice = Request for Money
It tells the buyer, “You got your goods. Now it’s time to pay.”
Once the buyer checks the invoice against the PO and confirms everything lines up, they make the payment.
Purchase Order vs Invoice: Simple Analogy
Imagine ordering a pizza!
- PO = You calling the pizza shop and placing an order. You say you want a large pepperoni with extra cheese. That’s your PO.
- Invoice = The bill that comes with your pizza. It shows what you got and how much to pay.
Easy peasy, right?
Key Differences at a Glance
| Feature | Purchase Order | Invoice |
|---|---|---|
| Who creates it? | Buyer | Seller |
| When is it sent? | Before the goods/services are delivered | After the goods/services are delivered |
| Purpose | To request goods & confirm order details | To request payment |
| Legal binding? | Yes | Yes |
| Used by | Buyer’s purchasing team | Seller’s billing/accounts team |
Can You Have One Without the Other?
Yes—but things work more smoothly with both.
Some businesses skip the PO step and go straight to invoicing.
But that can lead to misunderstandings:
- “I didn’t order that.”
- “That’s not the price we agreed on.”
Having a PO acts like a contract. It protects both sides.
Real Life Example
Let’s say SuperCo Office Supplies wants to order 100 chairs for a client.
- They send a purchase order to ChairMakers Inc.
- ChairMakers makes the chairs and ships them.
- Once delivered, ChairMakers sends a invoice to SuperCo for payment.
- SuperCo matches the invoice to their PO, confirms everything’s right, and pays the bill.
Why It Matters
If you’re running a business, here’s why knowing the difference helps:
- Better budgeting: POs show what’s coming in. Invoices show what’s going out.
- Less fraud: POs prevent surprise charges or duplicate payments.
- Smoother audits: Paper trail = happy accountants.
Digital Tools Make It Easy
Gone are the days of paper copies and filing cabinets.
Now businesses use software tools like:
- QuickBooks
- Xero
- Zoho Books
These programs can create, match, and send both POs and invoices with the click of a button.
Common Mistakes to Avoid
- Mixing up the terms: Don’t call an invoice a PO!
- Not matching documents: Always match POs to invoices before paying.
- Lack of PO numbers: They help keep things organized.
A PO number on the invoice makes auditing and tracking super simple.
Final Thoughts
The magic is in the order of events:
- Step 1: Buyer sends purchase order asking for goods.
- Step 2: Seller delivers the goods or services.
- Step 3: Seller sends invoice asking for payment.
Understanding the difference between these two docs not only keeps your business organized—it also helps you get paid (or pay up) faster and more accurately.
So next time someone mentions a PO or an invoice, you’ll know exactly what they’re talking about. And maybe even impress them with your newly acquired knowledge!
