Do you know the key differences between Purchase Order and Invoice? Here’s a guide on Purchase Order vs Invoice to discover the main differences.
In the world of business transactions, purchase orders (POs) and invoices are two critical documents that ensure smooth communication between buyers and sellers. While they are often confused due to their similarities, these documents serve distinct purposes. In this post, we’ll explore the key differences between purchase orders and invoices and how they contribute to an efficient procurement process.
What is a Purchase Order?
A purchase order is a document created by a buyer and sent to a seller to request goods or services. It acts as a formal agreement that specifies:
- The type and quantity of items being purchased.
- The agreed-upon price per item.
- Payment terms and delivery timelines.
- Buyer and supplier information.
Once a seller accepts a purchase order, it becomes a legally binding contract.
Example Use Case for Purchase Order:
A retailer places a purchase order with a supplier to order 100 units of a specific product at a set price. The purchase order ensures both parties agree on the terms before the order is fulfilled.
What is an Invoice?
An invoice, on the other hand, is a document issued by a seller to a buyer requesting payment for goods or services provided. It typically includes:
- A detailed list of items sold or services rendered.
- The total amount due, including taxes and discounts.
- Payment instructions (e.g., bank account details).
- The due date for payment.
Example Use Case for Invoice:
Once the supplier ships the goods requested in the purchase order, they send an invoice to the buyer to collect payment.
Key Differences: Purchase Order vs Invoice
Then, we can now summary the main differences between these two transactional documents.
Who Creates It?
The Purchase Order is created by the buyer, whereas the Invoice is created by the Seller.
Purpose
The purpose of Purchase Order is to request goods or services. However, the main purpoase of Invoice is to request payment for delivered goods/services.
Timing
The PO is created before goods or services are provided. On the other hand, the invoice is created after goods or services are provided.
Legal Binding
The PO becomes binding upon acceptance by the seller. The invoice is not legally binding, it serves as a payment request.
Key Information Included
The Purchase Order should include item descriptions, quantity, price, delivery terms and other key info on the procurement.
The Invoice should include the total payment amount, taxes, discounts, and payment terms.
Usage in the Process
The PO starts the procurement process. On the other hand, the invoice completes the procurement process.
Why Are Both Documents Important?
Despite the key differences between Purchase Order vs Invoices, these two documents are indispensably important for business processes.
Clear Communication:
Purchase orders prevent misunderstandings by clearly outlining the buyer’s requirements, while invoices ensure the seller gets paid on time.
Legal Protection:
A purchase order serves as a contract, while an invoice acts as proof of the transaction. Both documents are crucial for resolving disputes.
Record Keeping:
Businesses rely on purchase orders and invoices for tracking orders, managing budgets, and maintaining accurate financial records.
How DashPO Simplifies Purchase Order Management?
If you’re managing multiple purchase orders manually, mistakes and inefficiencies can pile up quickly.
DashPO, an online purchase order management tool, allows businesses to create, track, and store purchase orders seamlessly. It ensures accurate documentation, smooth collaboration with suppliers, and better overall procurement management.
Conclusion
While purchase orders and invoices serve different purposes, they are both essential for maintaining an efficient procurement and payment process. Understanding their roles and differences helps businesses reduce errors, improve cash flow management, and build stronger supplier relationships.
Want to streamline your purchase order process? Explore DashPO today and see how it simplifies procurement for your business!
