"Purchase order" and "invoice" are terms you'll hear a lot in sales. But there's sometimes confusion about what they actually do. If you've been wondering what the difference is, which one to use when asking for payment, and how to handle them, you're in the right place!
Purchase orders and invoices are both official sales documents that help your business manage money. They set clear expectations for both sides of a deal, but one is for ordering things, and the other is for asking for payment.
That's the simple explanation! In this post, I'll explain what each one does, how they're different, and why they matter for your business.
Purchase order vs invoice
A purchase order (or PO) is sent by a buyer to a seller, saying what goods or services they want to buy. An invoice is a payment request for those goods or services, sent by the seller to the buyer. The benefits are different too. Purchase orders help you track inventory and avoid ordering too much. Invoices help prevent paying twice and make it easier to manage budgets and taxes.
The point of a PO is to confirm what's being ordered, and the point of an invoice is to get paid for what was sold. Another big difference is timing: purchase orders are created when the buyer places an order, while invoices are (usually) created after the order is completed.
Why people confuse purchase orders and invoices?
There are similarities between purchase orders and invoices. Both include order details, seller information, shipping information, and prices. Both are legally binding and help with budgeting and spending. Both are business documents about buying goods and services. Now let's look at what each one actually does.
What a purchase order does?
A purchase order is the first step in a business deal. The PO lists the details of the deal that both sides agreed to. This includes what's being bought, prices, and when it will be delivered.
It's created and sent by the buyer's accounting team after the buyer and seller have talked. If the seller can provide what's listed in the PO, they can approve it, and it becomes a legal contract.
Purchase orders help finance teams track spending and set budgets. Both parties can check this document anytime to verify details or answer questions. They also make it easier for sellers to pack and ship products.
What a purchase order should include?
PO number
Date of purchase
Order details (what's being bought and how much)
Buyer information (including shipping address)
Payment terms
Seller contact details
Tax information
A PO number is a unique number on every purchase order. When an invoice arrives with the same number, the buyer can easily check that they got what they ordered and approve payment. Both businesses can use this number to find the right document quickly.
What an invoice does?
An invoice is basically a bill that the seller sends after completing what was in the purchase order. The invoice confirms this and says how much money the buyer needs to pay. This means the products were delivered or the service was done.
Invoices also track accounts receivable, which is the money people owe you. This matters for your balance sheet, and if you have investors, it shows them how fast you're getting paid.
If you're the buyer, invoices help you track your spending. If you're the seller, invoices remind the buyer to pay you. Once it's marked as paid, everyone knows the payment went through. Either way, invoices make tax time much easier!
What an invoice should include?
Invoice date
Invoice number
PO number
Seller and buyer details
Details of goods or services provided
Agreed price
Any discounts
Taxes (if needed)
Total amount due
Payment schedule
Payment methods accepted
Seller's signature
Always include the original purchase order number on the invoice. This way, everyone can find both documents easily and make sure everything matches.
How to manage purchase orders and invoices?
Now that you understand the difference, here are some tips for handling your invoices and POs.
Use the right technology
Small businesses might handle POs and invoices by hand. It's better to use digital tools that can create documents automatically, track their status, and make reports. But as you grow, this gets harder and you'll make more mistakes. Going digital means storing everything in the cloud instead of on paper that could get lost and cause problems during audits or disputes.
Promote your brand
Like anything your company creates, invoices and purchase orders are a chance to show off your brand. Adding your logo, branded headers and footers, and your fonts will help people recognize you and make your documents stand out.
Conclusion
Purchase orders and invoices are completely different documents, and salespeople need to understand how each works. What they have in common is that both prevent confusion between sellers and buyers so everyone knows what was ordered, when it's needed, and how much it costs. Instead of handling POs and invoices manually, you can save time and avoid mistakes with digital tools that help you grow your business smoothly.
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