Purchase order or invoice: how they differ
No, a PO isn't an invoice. They're opposite ends of the same sale. The buyer sends the PO before anything ships. The seller sends the invoice afterward.
The two documents side by side
| Purchase order | Invoice | |
|---|---|---|
| Sent by | The buyer | The seller |
| Sent to | The seller | The buyer |
| When | Before the goods or service | After the sale |
| What it says | What the buyer wants, and the agreed prices | What the seller supplied, and what's owed |
| Does it ask for money? | No | Yes |
Wikipedia calls an invoice a commercial document. It includes an itemized list of goods or services furnished by a seller to a buyer relating to a sale transaction.1
What you need to keep straight
- Your own PO numbers, one per order.
- The supplier's invoice numbers, one per bill.
- A note on every invoice saying which PO it belongs to.
The two number sets are separate. A supplier's invoice has the supplier's number. Your PO has yours. Good records link them.
Why the PO number goes on the invoice
The PO number is the link between the two documents. Without it, someone has to guess which order a bill belongs to.
Some organizations enforce this. Wikipedia notes "No PO, no pay" policies, under which invoices that don't refer to a purchase order number are returned to the supplier unpaid.2 A small business doesn't need to be that strict. It does help to ask suppliers to print your PO number on their bills.
Who owes what, and when
A PO is a commitment to buy. It isn't a bill. ERPNext's manual makes the same point in software terms: the invoice creates the payable, and an order is not itself a supplier invoice.3 The legal side is separate. Wikipedia says that if no prior contract exists, it's the seller's acceptance of the order that forms a contract between the buyer and seller.2 If a dispute is possible, ask a lawyer.
Tax invoices are a special case
In some countries, an invoice that meets tax rules has a special name and required details. In Australia, for example, it's called a tax invoice, and the Australian Taxation Office sets out what it must include. One ATO point: a tax invoice doesn't need to be issued in paper form.4
That rule applies to Australia. The US, UK and other countries have their own rules. Check the tax agency for your country, or ask your accountant. A PO is never a tax invoice.
Common mix-ups
- Sending a PO and calling it an invoice. The supplier can't treat it as a bill.
- Paying from the PO. The PO shows what you meant to pay. The invoice shows what the seller says you owe. If the two differ, find out why before you pay.
- Filing them apart. Keep the PO, the delivery record and the invoice together. The next step, checking all three, is three-way matching.
Notes and sources
- Invoice, Wikipedia
- Purchase order, Wikipedia
- Purchase Order, ERPNext Documentation (Frappe)
- Tax invoices, Australian Taxation Office
More on purchase orders
What a purchase order is and what goes on itA purchase order (PO) is a buyer's written order to a supplier. See what it states, what fields to fill in, and what software adds to it.
From request to payment: the steps of a purchase orderThe usual order of events when a business buys with a PO, from internal request and approval to receiving goods, the supplier bill and payment.
Numbering purchase ordersHow to number POs so you can find them later, with prefixes, year markers and running counters, plus how software series settings handle it.