What is a Purchase Order and how it is different from an Invoice ?

Starting out a new business venture?

Catching up on a few business terms can help you become a Pro early!

While starting out your own new business venture can be really exciting, it can be nerve-wrenching too at the same time. Unfamiliarity with new business terms can cause hindrance in understanding and communicating with clients. Especially, when related to the sale of physical goods, you need to catch up fast with the inside business terms.

Very early you will come across two seemingly familiar terms: purchase order and invoice.

Purchase order and invoice are two mostly confusing financial terms and they can often seem like synonyms. Both, purchase order and invoice are your commercial communication about goods and services. But their time of occurrence is different. Although they are quite similar, they have a few differences which must be understood clearly.

What is PO?

The purchase order (PO) is a document indicating types, a number of products and services to be purchased. It details the items to be purchased for a certain price. It also includes the payment terms, shipment, other associated terms, and conditions. The customer sometimes creates a standing PO. The standing or blanket PO allows a company to order the same product multiple times using the same PO number over an extended purchase period.

PO basics include:

Issue date of a purchase order

Client’s information

Supplier’s information

Purchase order number

A detailed list of goods and services ordered

Terms and conditions

Importance of a PO:

A PO is typically used when a buyer wants to purchase supplies or inventory on account. It is important as you and your team have instant visibility of incoming stock; how much is coming and when is it due to turn up. A properly managed Purchase Order system will quickly tell you what’s been ordered, shipped and received but not invoiced and so on. Besides that, creating POs in the system will help prevent ordering more of an item than you may need. You can also match the delivered goods against what was ordered, to prevent wrong delivery. Suppliers use PO’s to fulfill their orders and payment processing. Online invoicing software makes it easy to send purchase orders to vendors online, in pre-designed templates.

Invoice

Invoice is a document issued by a seller to a buyer indicating items sold, prices, date of shipment, delivery and payment terms. It is also called a “bill”, “statement” or “sales invoice”. The term invoice indicates money the buyer owes to a seller.

The invoice is also specified with the period of time after which the buyer has to make payment to the seller for the goods and services they have purchased. Modern-day invoices are transmitted online.

Importance of An Invoice

Invoices are a great way to track your earnings, business, and expenses. It gives you the view of the sale of products for inventory management and to calculate the amount of profit made. If invoices are utilized properly, they may act as documentation for all your business transactions. Invoice reports help you to show which orders are completed and paid for and total outstanding for the customers. Besides that, you have complete financial control of your business and ongoing progress. A suitable invoice system created by Invoicera is used in creating and scheduling client invoices with ease.

There Key Differences Between Purchase Order and an Invoice:

Why does a company need Purchase orders?

Be it a small business or an organization with multiple departments with a separate department handling purchase and vendor management. Let us find more about the purpose of a purchase order:

To set clear business expectations

POs are clear documents that tell your vendors about your specific orders details. It is beneficial for both the parties in order to cross-check and refer to, while in need. It helps the business managing orders

Purchase orders are official documents that help various other teams in the house about the incoming or yet to be received deliveries. It helps managing operations effectively and avoids delivery confusions. It helps in managing business budgets

Once a company creates a purchase order, it can help it factor its costs and therefore, manage budgets. It helps them know their expenses and allow them to save undue spends.

All the benefits written above are focused on purchasers. But, vendors need purchase orders too. As vendors, they use it for ensuring correct order deliveries and payment processing. It acts as a medium of transparent communication and avoids chances of any discrepancies.

Why does a company need an invoice?

The reasons why a company needs an invoice are:

It is an enabler for businesses to receive money:

Vendors are only bound to receive money once they send an invoice. Companies do not release payments until and unless they receive an official invoice from the vendor. Any call or email would never be able to suffice it.

Invoices update incoming payments:

As a vendor or supplier, you need to know the amount of money you’ll be receiving for the services offered. It will help you track your payments and have a clear picture of returns on your investments.

Must Watch this video for the quick review of differences b/w Purchase Order and Invoice

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A Quick Dip into The World Of Online Invoicing With Invoicera

Invoicera is an Online Invoicing Software with more than 14 years of experience and handles Purchase Order Management, serving more than 3 million businesses worldwide. The invoicing software helps in creating and managing every business purchase order and invoice. It also lets you save every communication to keep a clear tab of all your records. It comes with online time tracking, payments, expense management, recurring/subscription billing, client/vendor panels, workflows, multi companies, multilingual & multi-currency support, staff permissions, financial reporting & analysis, purchase order management, subcontractor billing and time management, comprehensive reporting and APIs for 3rd party integration.

Frequently Asked Questions

Ques: What is the major difference between a purchase order and an invoice?

Ans: A Purchase Order is an itemized list of requirements created by the organization and shared with suppliers for raw material.

An Invoice is an itemized bill created by the organization against the sale of the goods to customers.



Ques: Can I create a Purchase Order with Invoicera?

Ans: There could be specific circumstances when you feel the need to issue a credit memo to your customer. Some common instances could be, as followed:

When you need to cancel an issued invoice fully or partially.

You are seeking a partial credit for the wrong items supplied.

The goods have already been purchased earlier and you want to request a refund for the goods returned to the vendor.