What’s the Difference Between Purchase Order and Invoice?
If you are new to the procurement arena, you may have trouble differentiating between invoices and purchase orders. In fact, even procurement team members have multiple opinions and definitions about what constitutes each process.
Failing to catch up on familiar procurement terms could make you skim through important financial documents, missing the finer points that can negatively impact your organizational spend. You simply can’t afford to stay ignorant of the procurement process.
To help you understand these terms better, here are clear definitions of these two procurement terms, what each constitutes, and how they differ from each other.
What is a purchase order? what does it contain?
A purchase order (also known as a PO) is the official document sent by a buyer to a vendor with the intention to track and control the purchasing process. Once a vendor accepts the PO, it becomes a legally binding contract.
Purchase orders outline the list of items (goods and services) a buyer would like to purchase, order quantities, and agreed-upon prices.
A purchase order usually includes:
- PO number
- Date of purchase
- Buyer details
- Order information
- Payment terms
- Delivery address
What is an invoice? what does it contain?
An invoice is an official payment request sent by the vendor to their buyers once the order is fulfilled. It lists down the goods or service that have been delivered and specifies the amount of money that is owed.
Typically, an invoice contains invoice number, vendor information, credits/discounts availed, payment schedule/date, and total amount due.
Key differences between purchase order and invoice
|Order confirmation sent by the buyer to the vendor||Payment reminder sent by the supplier to the buyer|
|Generated when the buyer places an order||Generated after the order is fulfilled|
|Defines the terms of a purchase||Defines the confirmation of a sale|
|Prevents overstocking of inventory||Prevents duplicate and overpayments|
|Makes it easy to track inventory||Helps compute spend and taxes|
Similarities between purchase orders and invoices
Purchase orders and invoices are two of the most confusing financial terms, and they can often seem like synonyms. Both are commerce-related communications about goods and services. But their time of occurrence is different.
Although they are quite similar, they have a few fundamental differences, which must be understood clearly.
Most often, the terms purchase order and invoice seem like synonyms. Although they have a number of differences, purchase orders and invoices have quite a few similarities:
- Both are commercial communication about purchases
- They play an integral role in optimizing spend
- They provide better visibility into the purchasing process
- Both include basic order details, shipping information, vendor details, and price
- Both purchasing documents are legally binding
Why do companies need both purchase orders and invoices?
Although a purchase order or an invoice might feel like an added burden, as the demand for purchases increase and the buyer-seller relation continues to evolve, these financial documents help a business manage its purchases smoothly.
When it comes to a choice between purchase order vs invoice, you can’t just pick one–both documents are equally important. While invoices seem critical from a legal point, purchase orders offer the much-needed clarification and prevent conflicts.
No matter whether there are increases or decreases in demand, or if the purchasing process is complex or simple, using POs and invoices will eliminate mistakes in communication by setting explicit expectations of the items being purchased.
Why take purchase orders and invoice management digital
Initially, when a business is small and the number of purchases they make is low, managing purchase orders and invoices manually is easy. But, as the organization starts growing, the number of purchases increases as well. Even having a better understanding of the differences and similarities of purchase orders and invoices won’t help you much here.
As businesses start receiving tons of purchase orders and invoices through avenues like email, fax, snail mail, etc, handling them all manually is time-consuming and error-prone. But each small data point is extremely important to the process being effective.
Not all businesses can afford to invest in a complex electronic data interchange (EDI) system with their suppliers. To avoid losing data trapped inside purchase order invoices, organizations can turn to procurement solutions like Kissflow Procurement Cloud. Using such a tool, businesses of all sizes run their procurement processes like purchase order and invoice management through a system built specifically to enhance the speed and efficiency of these core procurement functions.
Comprehensive procure-to-pay solutions like Kissflow make it easy for organizations to extract data from all types of invoices and purchase orders (pdf, scanned, or even faxed documents). What’s even better is that Kissflow is actually designed to work in tandem with other purchasing, finance, and accounting tools you may be using already, with optimal flexibility and reliability.
Are you on the lookout for an online solution for procurement that makes purchase order invoice creation easy? Take a look at the Kissflow Procurement Software demo today, and see why it is a better way to manage your purchase orders and purchase invoices.