If you are not familiar with procurement processes and documents, you may be wondering: What is the difference between purchase order and invoice documents? After all, many people assume that a purchasing invoice and a purchase order are the same thing. This could cause significant confusion during a purchase transaction.
What are purchase orders? What are invoices? How are they different? You’ll find all of these answers in this article.
What is a purchase order?
In the realm of procurement, the distinction between purchase requisition vs purchase order holds significant weight. What is a purchase order? By definition, a purchase order is a document that is created and sent by a purchaser to a vendor, detailing a purchase request.
This stands in contrast to a purchase requisition, which typically precedes a purchase order and is an internal document requesting approval to proceed with a purchase. The purchase order contains a list of items the buyer wants to purchase, the quantity of each item, the agreed price for each item, and other relevant information that allows the seller to evaluate and fulfill the request. Recognizing the differences and the sequential relationship between these two documents is crucial for streamlined and efficient procurement processes.
How do purchase orders work?
When a business or individual wants to make a purchase, they review information from the seller to find the items they need. This includes identifying data such as SKU or product numbers, item descriptions, and other information. It also includes the requested delivery date so that the buyer and seller both understand when fulfillment is to be complete.
Each item, and the quantity of each item, are then listed on a purchase order, which is given a unique identifying number. This allows both parties to track fulfillment. Click here If you want to dive deeper into what is a PO number and how to use it.
What are the different types of purchase orders?
Another key difference in the purchase order vs invoice discussion is the number of varieties. While invoices are fairly standard, there are actually four primary types of purchase orders:
- Standard purchase order - this is the most commonly used type of purchase order, and is also the most detailed. Sporadic and one-off purchases are best requested using a standard purchase order.
- Planned purchase order - this type of purchase order contains all of the information in a standard purchase order, except for the delivery information. This type of purchase order is appropriate for orders that will be delivered in batches to the same physical location.
- Blanket purchase order - a blanket purchase order is the same as a planned purchase order, but without item quantity and/or price information. This document is appropriate for recurring orders to be delivered at specified intervals.
- Contract purchase order - this type of document is a blanket purchase order minus any specific item information. It is meant to set the binding terms of future purchase orders, and effectively creates a contract between the buyer and seller. Click here if you want to learn more about purchase order terms & conditions
When are purchase orders used?
Purchase orders are used when a business buys items from another company. Some companies have purchasing managers who review or create purchase orders; in smaller businesses, the owner may act as the purchasing manager.
What is a purchase order system?
A purchase order system is a platform that allows you and your authorized employees to create, submit, track, and reconcile purchase orders. Traditionally, this was done on paper, but most systems today are digital.
Managing purchase orders internally, though, can be a headache. Purchase order and invoice processing can take hours out of your week, and could even be a full-time job of its own in some companies. Many businesses today rely on platforms like ControlHub to make the purchasing process smoother, easier, and error-free.
What is an invoice?
Now that you understand purchase orders, let’s move to the other side of the “invoice vs purchase order” discussion.
Unlike a purchase order, an invoice is generated by the seller, not the buyer. It is a document that lists items that the seller has provided, and requests payment for those items.
How do invoices work?
After a seller fulfills and delivers items ordered by the buyer, whether on a one-off or recurring basis, the seller creates a purchase invoice showing the number and identity of each item purchased, along with the price per item, total quantity price for each item, and the grand total. The invoice also establishes payment terms, such as payment due date or installment due date.
The seller then supplies the invoice to the buyer and tracks the invoice to ensure that payment is received.
How are invoices different from purchase orders?
The key difference between invoice and purchase order documents lies in the utility of each. A purchase order is sent by a buyer to a vendor with the intention of tracking purchase requests and maintaining overall control of the procurement process, while an invoice is intended to create an obligation for the buyer to pay the seller for items provided.
FAQ
Q: Which document authorizes the purchase of inventory from an approved vendor?
A: The purchase order.
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Q: What does purchase order and invoice processing mean?
A: Purchase order and invoice processing are systems through which a business manages its purchase orders and invoices. Detailed tracking of items a business buys and sells, along with the financial details of each item purchased and sold, is critical to the business’s long term viability.
Frequently Asked Questions
What is a purchase order?
Ah, the love letter to your favorite vendor! A purchase order is a document you, the purchaser, create and send to the vendor. It outlines all the details of your purchase request, like the items, quantities, prices, and other relevant info. It's like a shopping list on steroids!
How do purchase orders work?
A: Imagine you're on a quest for the perfect item. You gather all the details, set a delivery date, and jot everything down on a purchase order. This magical document has a unique identifying number that allows both you and the seller to track the fulfillment of your purchase. It's like a barcode of happiness!
What are the different types of purchase orders?
Oh, we've got quite the variety to cater to all your purchasing needs! Check these out:
1. Standard Purchase Order: The go-to choice for most purchases.
2. Planned Purchase Order: Perfect for orders delivered in batches.
3. Blanket Purchase Order: Great for recurring orders at specific intervals.
4. Contract Purchase Order: Sets the binding terms for future purchases.
What is an invoice?
The grand finale of your purchasing journey! An invoice is created by the seller, not you, and it's all about payment. It lists the items provided and requests payment for them. It's like the final receipt that seals the deal!
How do invoices work?
Once the seller has fulfilled your order, they create an invoice. It reveals the number and identity of each item purchased, along with the prices and total quantity. The invoice also establishes payment terms, like the due date or installment schedule. The seller sends it to you, eagerly tracking it to ensure you receive and honor the payment. It's like a friendly reminder to keep those financial wheels turning!
How are invoices different from purchase orders?
Ah, their purpose sets them apart! A purchase order is your superhero sidekick, tracking and maintaining control of the procurement process. It's all about making sure you get what you need. On the other hand, an invoice is like a gentle nudge, reminding you of your obligation to pay the seller for the items provided. It's the final step in your business transaction dance!
