Key Takeaways

• Purchase orders are legally binding upon approval.
• POs help manage orders and track progress.
• Business professionals can forecast future costs through purchase orders (POs).
• Invoices request payment and are necessary for maintaining a smooth cash flow.
• Both invoices and purchase orders serve as important records in accounting.
• Purchase orders are always sent before goods are delivered, while invoices are sent later.

What Is a Purchase Order?

Before we proceed with the difference between a purchase order and an invoice, let’s understand what a purchase order means. 

A purchase order (PO) is an official request document that outlines the goods and services the buyer wishes to acquire from the vendor at a predetermined price and in a specified quantity. It is sent from the customer to the supplier for confirmation. In large corporations, the purchasing department handles this process.

Once the vendor accepts the purchase order, with agreed-upon prices and terms, it becomes a legally binding contract. Both parties can use a PO to track and organize their respective purchasing processes and activities, making the procurement process smoother. Thus, it improves the buyer-seller relationship.

A Typical Purchase Order covers the following information:

• Purchase Order number
• Date of issuing Purchase Order
• Contact information of vendor/seller
• Brief description of goods or services with quantity
• Price
• Terms and conditions
• Other notes or information

It’s easy to generate a PO through a robust PO generator like Moon Invoice, which is committed to accuracy and professionalism. Additionally, it’s also easy to share the PO with the vendor via WhatsApp or email. Once the purchase order is received, the vendor can automatically generate invoices based on the purchase order data in their system for the procurement process.

PR Newswire reports that the purchase order financing market is expected to reach $12.9 billion by 2033, growing at an 8.7% CAGR.

Best Tips for Efficient Purchase Order Processing 

• Always use reputable purchase order software. 
• Mention the details clearly to the point for a better procurement process.
• Include the purchase order number and keep it unique for each order to facilitate better tracking.
• Mention the vendor details after varying. 
• Keep track of the order status.
• Cross-check the details before sharing them with the vendor.

Why Are Purchase Orders Important?

As purchase orders are crucial documents in the commercial world, businesses often gain various benefits from them. The following are the points that reflect the value of a purchase order:

1. Preventing Duplicate Requests

Through purchase orders, businesses can easily determine the key details of orders, such as who placed them, when they were placed, and what was ordered. An absence of a purchase order can lead to duplicate requests, resulting in business loss.

2. Enhance Inventory Management

Purchase orders help determine the amount of stock in inventory, helping to avoid conditions like stockouts and overstocking.

3. Budget Management

Companies can easily track and manage their budgets through a purchase order (PO). Professionals can prevent overspending by ensuring that all expenditures are aligned with the budget.

4. Analysing Order Performance

Businesses can easily analyze order performance through PO. They can clearly see which orders are valuable and which are not.

What Is a Purchase Order (PO) Number?

A PO number is a unique identifier assigned to every new purchase order. This number serves as an identifier for the specific PO. An individual may identify a purchase order by its purchase order number. Thus, it simplifies the tracking.  

Accounting software often generates this number instantly whenever a new sales invoice is created. The customer and the seller use it to track business transactions from start to finish, and the seller uses it on subsequent invoices.

Reconciling orders requires PO numbers on invoices. Therefore, verifying that the goods stated on an invoice were bought and received is essential by comparing the invoice number to the corresponding purchase order (PO) number.

What Is an Invoice?

An invoice is a financial document that the seller issues to request payment from the buyer. This document is released after agreeing to the purchase order terms and after selling products or goods to collect payment from the client or customer. It contains line item details of goods and services provided.

An invoice is not a legally binding document, but it establishes clear communication and understanding of the billing. The invoicing process should be accurate and efficient to keep a healthy cash flow. 

Following the delivery of a finished product or the completion of a service specified in a purchase order, the seller issues a regular invoice. After receiving the invoice, the buyer agrees to the payment terms.

A typical invoice covers the following information:

• Date of invoice, invoice number, and due date 
• Purchase order number 
• Currency
• Shipping method 
• Client details like name, address, and contact number
• Business details like name, address, and contact number 
• Description of product or services with quantity & rate
• Details of applicable tax and discount
• Payment schedule 
• Payment options that the company accepts 
• Terms and conditions related to the payment

Best Tips for Efficient Invoice Processing

• Add the details in a concise manner
• Always include the invoice number
• Don’t forget to include payment terms in an invoice
• Provide multiple payment options to the client for a better invoicing process
• Always use invoice templates from reputable invoicing software
• Mention the due date
• Don’t forget to review the invoice before sending it to the client

Why Are Invoices Important?

Invoices are helpful in keeping the billing process on track, maintaining a healthy cash flow, and ensuring all due payments are made in a timely manner. They enhance the accounts receivable process. Moreover, they also contribute in the following ways: 

1. Legal Supportive Document

Although an invoice is not a legally binding document, it serves as perfect evidence during the legal process. It is also helpful for resolving disputes because it contains all the details related to payment terms, business, client, and the price of the product or service.

2. Payment Tracking

Invoices are very helpful in tracking payments. Both the vendor and customer can track the payments using invoices. 

3. Keep Detailed Records

In business, it is essential to document & maintain everything. For example, a customer’s outstanding balance and whether payment has been made can be seen on their custom invoices. Investors can easily analyze the accounts receivable turnover ratio, which indicates how efficiently the business collects payments.

4. Easily Submit Your Taxes

Businesses must keep records of their revenue and expenditures for the preceding fiscal year to file their taxes. The tax process is simplified by having paid invoices serve as receipts.

Key Differences Between Purchase Order and Invoice

The major difference between invoices and purchase orders is their purpose and when they are generated. When it comes to the differences between the purchase order and invoice, here are the key factors:

Most Similarities Between a Purchase Order and an Invoice

After covering the concept of purchase orders vs. invoices, we now focus on their similarities. It’s easy to confuse both purchase orders and invoices since they sound similar. Both involve exchanging information about a product or service for commercial gain. POs and invoices play a vital role in the payment process. 

A few common similarities between the two documents are –

• Both have a unique number.
• Both describe the sales and services delivered.
• Both describe the total value of purchases made or recurring purchases, including taxes.
• They are crucial to the process of cost-cutting optimization.
• In the purchase process, they provide more transparency.
• Price, primary purchase data, vendor information, and delivery information are all included.
• Both documents are helpful in the legal process. 

Why Do Companies Need Both Purchase Orders and Invoices?

Since they’re both crucial, you can’t choose between a purchase order and an invoice. Invoices may be essential from a billing perspective, but purchase orders provide much-needed clarity and help avoid disputes.

By using invoices, purchase orders (POs), and sales invoices, miscommunication may be avoided by clearly outlining the expected outcomes of the transaction, regardless of whether demand is rising, falling, or remaining steady.

Issuing Purchase Orders and Invoices 

Although forms like invoices and purchase orders may be easily understood and used, they require precision and accuracy. Manually creating invoices is still tedious and prone to errors.

The loss or disorganization of manual records may complicate conflicts or audits. Purchase invoices, along with accounts payable and accounts receivable, can be important financial documents for both buyers and sellers.

The good news is that time-consuming paperwork can be avoided thanks to digital purchase orders (POs) and invoicing. In addition to saving on the cost of photocopying and postage, eliminating these two processes means that you may issue more purchase orders and invoices every day without breaking the bank. Using a digital option is also less complicated and more convenient.

Consider using online invoicing software such as Moon Invoice. It has all the latest features that make your invoicing effective, such as automated payment reminders, recurring billing, reporting, payment alternatives, activity monitoring, and more, before making a final decision.

How to Manage Your Company’s Purchase Orders Using Moon Invoice?

Keeping track of company funds using a desktop or mobile app is an excellent method to maintain order and maximize productivity. Moon Invoice has user-friendly, adaptable, and industry-specific invoicing software. It can help you create and send invoices efficiently.

For instance, Moon Invoice’s online invoice generator allows you to create outstanding invoices through customized invoice templates, prepare purchase orders, sort out duplicate requests, automate tax calculations, and create smart business reports. You can also collect money and manage payments with Moon Invoice.

In a large organization, different departments work on various large projects, and maintaining communication is a crucial part of accounting. Moon Invoice is a better way to send invoices while reducing administrative burden.

If you want to try our online invoicing software for free, contact us NOW!

Verdict

Purchase orders and invoices are crucial financial documents for every business; professionals must handle them effectively. They maintain the buyer-seller relationship well. Although the purpose of both documents is different, their value is the same. So far, we have presented sufficient knowledge of POs vs. invoices that every business professional should know. 

What is the difference between a purchase order and an invoice? We hope this is no longer a big puzzle for you.

Frequently Asked Questions