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Invoice Vs Purchase Order: What’s The Difference? 

Invoices and purchase orders play a crucial role in every retail business and the purchasing process…
Invoice Vs Purchase Order: What’s The Difference?

Knowing the difference between an invoice vs purchase order is essential for any part of the procurement process.

If you are new to the procurement process, it can be challenging to understand invoice vs. purchase order and what defines both terms. Even people who are a part of a procurement team often have different definitions regarding the difference between a purchase order and an invoice.

If you don’t understand some of the most essential procurement terms, you can have difficulty going through financial documents, and you might miss out on some of the most critical details. It can harm the finances of your business.

Although accounting software and invoicing software for small businesses like Vencru can help with the financial processes, you still need to understand some key terms. Vencru provides you with all accounting and invoicing solutions for your small business, and you can also use it as a tool to manage your inventory efficiently.

However, you should understand what invoice vs. purchase order is and what makes them stand out from each other. Before we get into the key differences, let’s find out what each term means.

Invoice

An invoice is an official request for payment sent to the buyer by their vendors once the order is complete and fulfilled. It contains all the details regarding the services and products that have been delivered and provides the payment information like the total cost.

Typically, an invoice contains the following:

  • Vendor information
  • Invoice number
  • Any discounts or credits used
  • The total amount that is due
  • Payment date or schedule

The Purpose Of Invoices

Invoices are vital for small businesses. They are a written record of all the goods and services provided to your customer by your small business and how much the customers were charged. When appropriately used, invoices can help you keep track of all the expenses and revenues.

Invoices make it easier for small businesses to know which accounts have been paid for and are complete or which accounts still have outstanding charges that need to be cleared. Having an accurate record of your invoices can also make it easier for small businesses to pay their taxes as it shows you how much revenue was collected during the year.

Purchase Order

A purchase order, more commonly known as a PO, is an official document sent by a buyer to their vendor. It has the intention to control and keep track of the purchasing process. When the vendor accepts the purchase order, it becomes a legally binding contract between the vendor and the buyer.

A purchase order typically contains the following:

  • Date of purchase
  • Purchase order number
  • Order information
  • Buyer details
  • Address of delivery
  • Terms of payment

The Purpose Of Purchase Orders

The purpose of a purchase order is to keep track of your order status, manage all the payments that have to be made to the suppliers, and clarify the terms of the transaction. It lets the supplier know what products to deliver to the customers and the quantity. It also tells the supplier when they will receive payment for the goods or services they provide.

When you keep a clear record of the purchase orders, suppliers can know exactly how much of their inventory they have sold to the customers and when the payments for the goods they have sold are due. Keeping a record of the purchase orders also lets suppliers know when to restock their inventory and prevent them from overstocking their list.

Key Differences Between Invoice And Purchase Order

  • The Goal Or Objective

When you issue an invoice, you ask the customer to make the payment for the goods and services you have provided for them. The main objective is to collect the payment and ensure you are getting all the accounts cleared on time and nothing is overdue.

When you issue a purchase order, you request your supplier to deliver the goods or services you require from them. A purchase order aims to ensure the order you make is fulfilled, and everything takes place according to the terms. It also provides the price of the goods and services is mentioned clearly to all parties.

  • The Timing

A purchase order is what marks the start of a transaction. It is sent when you place an order with a vendor or a supplier. The purchase order is the document that needs to be accepted by the vendor to form a contract between both parties. Also, a purchase order marks the beginning of a transaction.

Unlike the purchase order, an invoice is sent at the end of a transaction. It is sent by the vendor or supplier to the customer to inform them about the remaining payment. It has the information from the purchase order, and it marks the end of a transaction between the customer and the vendor.

  • Different Information

Both the documents contain different information. The invoice contains all the terms of payment regarding the transaction. From the invoice, you get all the information related to the purchase. If you have any discounts or deals available, they will be mentioned on the invoice for your order. Through the invoice, you are made aware of the total amount due.

In contrast to the invoice, a purchase order contains all the information you need to provide to the supplier to get the products or services. The purchase order includes a detailed description of the order. It also has the price that has been agreed upon by the customer and the estimated time of delivery for the order.

  • The Purpose

A purchase order has a very different purpose than an invoice. A purchase order clarifies that the purchase has been confirmed. It helps suppliers and vendors keep a better track of the inventory. They can ensure that they are never under-stocked or overstocked.

An invoice is used to clarify the sale and provide confirmation of the sale. It helps you calculate the taxes and spending of your business. Keeping a record of all the invoices through the year can make it easier to calculate the tax that you will be paying at the end of the year.

Similarities Between Invoice And Purchase Order

Although invoice and purchase order are two different things, they also contain similarities. Let’s have a look at what some of these similarities are:

  • They play an essential role in the budget and spending
  • Both are used in the purchasing process and retail communication
  • They enable the purchasing process to become more transparent
  • Invoices and purchase orders documents list the essential details regarding the order

Final Takeaway

Invoices and purchase orders play a crucial role in every retail business and the purchasing process. Suppose you clearly understand the differences between invoices vs. purchase orders. In that case, you can track both documents better and use them to make your small business’s financial processes more efficient.

You can get Vencru, one of the top accounting software and invoicing software for small businesses. Vencru can help you streamline all your financial processes and automate the invoicing tasks to help you save time and resources.

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