Many businesses suffer from inventory mismatching, taxation issues, and finance mismanagement. These issues cause trouble for the business and affect its overall operation.
However, professionals can successfully overcome these challenges through purchase invoices. This financial document holds a valuable place in the business world. It helps to manage cash flow, records, and inventory.
Here, we will define a purchase invoice definition and what information is contained in a purchase invoice.
What Does Purchase Invoice Mean? Why Are They Important?
A purchase invoice is a financial document that the supplier issues to the buyer to urge for payment in correspondence with the purchased product. This invoice outlines the details about the purchased goods, unit price, quantity, and applicable taxes.
Purchase invoices are crucial and hold a valuable place in a business. Following are the points that justify the same:
Transaction Proof: Purchase invoices act as transaction-proof documents. This serves as a reference for refunds and returns.
Tax Compliance: Purchase invoices are tax compliance documents and simplify the taxation process.
Managing Cashflow: Professionals can manage cash flow in a better way through a purchase invoice. Businesses do not have to suffer from unpaid amounts for a long time.
Documentation: The purchase invoice offers proper documentation.
Legal Records: Purchase invoices are useful in creating legal records of the sale. It also includes the details of who bought and sold the product.
Inventory Management: Purchase invoices are also helpful in managing inventories. Professionals can easily check the difference between sold inventory and inventory available in stock.
What Is Included on Purchase Invoice?
After identifying what a purchase invoice is, we now define what necessary details it should include. Have a look below for the same.
Invoice Number: The invoice number reflects a unique number assigned to every invoice. The primary purpose of this number is to track invoices.
Invoice Date: Mention the date on which you issued an invoice.
Due Date: The final date that allows the customer to send the payment.
PO Number: PO# is a unique identifier number for purchase orders.
Seller’s Information: It includes the seller’s details, such as name, address, and contact number.
Buyer’s Information: The buyer’s details cover their name, address (shipping address and billing address), and contact information.
Itemized List: This covers the description of goods or services that customers ordered. Ensure it includes all essential details.
Cost: Cost of every item purchased in breakdown form for better understanding.
Applicable Taxes: The purchase invoice should contain applicable taxes.
Terms & Conditions: A purchase invoice should contain the company’s terms and conditions.
Additional Note: Additional notes cover additional points that users want to add. It can be like a thanks note or warranty details.
A Right Destination for the Perfect Invoicing Process Is Here
Create custom & clean purchase invoices on every deal.
How to Create a Purchase Invoice?
Creating a purchase invoice is possible with the purchase invoice template that offers in-built samples that simplify the purchase invoice making. Adopt the below steps to create a professional purchase invoice example:
1. Choose Purchase Invoice Template
The user needs to first choose a purchase invoice template that is close to his needs. Look for a template that is customized and free to download. Moon Invoice software provides over 66 customizable invoice templates in formats such as Doc, Sheet, Word, Excel, and PDF.
2. Start Customizing
Initiate customizing once you choose and download the invoice template. You can modify the overall layout as per your need and later on fill in the following details:
- Invoice number, invoice date, & due date
- Currency
- PO number
- Business Information
- Customer information
- Purchased goods and services description
- Unit cost, quantity, and applicable tax or discount
- Terms and conditions
- Signature of authorized person and customer
3. Review the Invoice
Recheck the invoice details thoroughly after mentioning the details. This will assure you that no errors are left. By mistake, if you send an invoice with errors, it will affect the whole process and may cause delay.
4. Save or Send Invoice
Once your invoice is final, save it or share it with your client. Moon Invoice offers an online method of sending invoices. Users can send invoices via WhatsApp or email. Also, a user can choose an offline method of sending an invoice. Take a printout of the invoice, followed by sending a hard copy of it.
Why Create a Purchase Invoice?
Purchase invoices are crucial for small businesses. They represent billing details in a well-structured form. For a business, it becomes easy to track outstanding dues. Maintaining detailed invoice records simplifies taxation. Business professionals can easily get insight into the revenue amount collected.
Tips for Creating Outstanding Purchase Invoice
Creating the best purchase order is a far better approach than creating a normal purchase order. Business professionals must follow the below tips:
1. Clear Layout
Always keep the overall design and layout simple and clear. A complicated design can ruin your invoicing game. It is a good idea to choose & keep themes and colors aligned with your business’ nature and logo.
2. Correct Details
You must focus on the correctness of the details. Accidentally, if you put in the wrong information, it will impact your invoicing. Whether the details are of business, client, rendered service description, or cost, it should be correct.
3. Multiple Payment Methods
Always offer multiple payment options to the client. It will provide convenience to the client and also boost your payment process.
4. Payment Terms
Always mention payment terms in clear and understandable language. It should include net payment terms, payment methods, late fee details, or any other information related to the payment instructions.
5. Delivery Details
Mention all the details about the delivery. It covers delivery dates, delivery addresses, and terms. This simplifies the delivery process and impacts positively on the overall process.
What Does Purchase Order Mean? Why Are They Crucial?
Purchase Order (also known as PO in short) is a document that represents the details of a product in terms of types and quantities. Additionally, it will also cover the cost, terms, and payment methods for the client. Often, purchase order and purchase requisition are confusing terms for business owners. However, both are different from each other.
Purchase requisition is a formal document that employees of large companies issue to the purchasing department within the department. It is an internal document which is shared within the company.
Purchase Order Offer Following Benefits:
Clarity
Purchase orders represent clear and well-defined documentation that avoids confusion. This helps both parties (supplier and buyer) to keep the process smooth. It covers details regarding products, services, quantities, and agreed prices.
Legal Protection
A purchase order is a legally binding document that protects both parties from legal disputes. Thus, it helps prevent confusion.
Inventory Management
Purchase order helps the business to manage inventory well and prevent the suffering of low stock. It is because businesses get the products in advance as suppliers initiate the delivery, once they receive the PO.
Enhancing Supplier Relationship
A well-written purchase order helps to enhance supplier relationships. The main causes behind it are detailed clarity and ensuring timely fulfillment of needs.
Budget Control
Purchase order helps the business to have full control over the budget. Professionals can easily track their expenses and plan their investments accordingly.
Prevent Unauthorized Purchasing
Purchase order prevents fraudulent activities and unauthorized purchases because the financial department or any other concerned department approves it.
What to Include in a Purchase Order?
A proper and complete purchase order carries all the essential information. In general, it consists of the following details:
PO Number
A purchase order number is a unique identifier assigned to each purchase order. It helps track purchase orders since each one has a unique number. However, assigning PO numbers should be in a sequence.
Contact Details
The purchase order must contain the details regarding the supplier and buyer. It covers name, address and contact details.
Purchase Order Date & Currency
Business professionals must mention the date on which the purchase order was issued along with the applicable currency.
Shipping Method
Clearly define the method of shipping. It can be standard ground, international shipping, PO box delivery, freight shipping, and priority shipping.
Description of Goods or Services
It is extremely important to mention a brief description of goods and services. Business professionals need to be careful here and include all the required information. Always mention the breakdown details for several goods or services.
Unit Price, Quantity, and Tax
Add the corresponding quantity, unit price, and applicable tax for goods and services. Keep a cost breakdown flow as per the number of goods or services to ease understanding.
Terms and Conditions
Sketch out all the terms and other conditions as per your company. Mention them in an easily understandable language.
What Points Differentiate Purchase Orders and Purchase Invoices?
The difference between PO and Invoice is based on the following objectives.
Purchase Order: It is sent to the supplier to request the delivery of goods, primarily to meet order demand.
Purchase Invoice: Issued to the customer to get payment for the purchased goods. Its purpose is to get the due payment.
Let’s understand the key differences in tabular form:
| Purchase Order | Purchase Invoice |
|---|---|
| Here sender is the buyer | Here sender is the seller or vendor |
| Here receiver is the seller/vendor | Here receiver is the buyer |
| Issued to the supplier to initiate the delivery of goods or services | Issued to customers to initiate payment for purchased goods or services |
| Shared at the beginning of the business transactions | Shared at the end of business transactions |
| Cover the details of ordered products along with the agreed price | Covers the details of purchased items along with the cost, applicable tax, and total due amount |
| It includes an estimated delivery time | The due date is there in the purchase invoice |
How Purchase Orders and Invoices are Similar?
Purchase orders and invoices contain similar information. Both financial documents include the details of the following fields:
Date: A date is mentioned in both PO and PI that represents its date of issue.
Unique Reference Number: Purchase orders and purchase invoices include PO# and PI#. This number is unique and assigned sequentially.
Parties Involved: Both purchase orders and invoices include details about buyers and sellers.
Product & Service Description: The product and service description is an important part of the purchase order and purchase invoice.
Terms and Conditions: Both purchase orders and invoices specify the payment terms and conditions. However, the content and points are different in both documents.
Apart from all these points, the other similarity is legal concepts. PO and PI contribute to the role of legally binding documents.
Why Do Business Owners Utilize a Purchase Invoice and a Purchase Order?
Purchase invoices and purchase orders are important documents for any business. Let’s see when business owners need them.
Purchase Orders (POs)
Business professionals use PO to facilitate the procurement of goods and services or raw materials. Also, they easily track orders and inventory.
Purchase Invoice
The vendor issues a purchase invoice to the client to request payment. Further, companies use this document to plan budgets, tax compliance, and systematic cash flow management.
What Does Three-Way Matching Operation in Invoicing Mean?
A three-way matching operation in invoicing is a process of matching the details of three financial documents – PO, order receipts, and vendor invoice (bill of sale).
PO: Buyers or buying departments create purchase orders and mention the required products or services along with quantity and cost. Later on, it is sent to the seller once approved by the supervisor or boss.
Order Receipts: It is generated when goods or services are delivered and delivered.
Vendor Invoice: It is also known as a bill of sale and covers the details of given goods or services. The seller sent this invoice.
Professionals in this way can ensure that products or services, quantities, prices & terms are correct. The financial department team addresses and corrects the issues if any errors or discrepancies are found. The payment is processed once the error is fixed.
This 3-way matching process is crucial for large to mid-scale businesses. However, it is not compulsory for small businesses.
Replace Your Paper Work With the Digital Power
Acquire the next level of billing while generating a digital purchase invoice. 66+ customized invoice templates for you.
Conclusion
A purchase invoice is essential for businesses of all sizes. It helps in streamlining the record-keeping and tracking the financial condition of the business. Additionally, you must know the correct details to include and the procedure to create a purchase invoice using invoicing software.
Are you finding it hard to get? Go with Moon Invoice today!
Frequently Asked Questions
Jayanti Katariya is the founder & CEO of Moon Invoice, with over a decade of experience in developing SaaS products and the fintech industry. He holds a degree in engineering. Since 2011, Jayanti's expertise has helped thousands of businesses, from small startups to large enterprises, streamline invoicing, estimation, and accounting operations. His vision is to deliver top-tier financial solutions globally, ensuring efficient financial management for all business owners.
