- Definitions
- Invoice vs. Purchase Order
A purchase order is sent to the customer before the purchase. It outlines the goods or services they wish to buy. The customer must sign the order form to confirm their intention to purchase.
Key Takeaways
- A purchase order is issued by the buyer before the purchase to authorize spend; an invoice is issued by the seller after delivery to request payment.
- Invoices must reference the PO number when one exists so AP teams can complete three-way matching with the receipt and PO line.
- A signed purchase order is a contractual commitment, while an invoice is a mandatory legal document for tax authorities to justify expenses and income.
Definitions
Definition of an invoice
An invoice is an accounting document issued by a seller to a customer.
It details the goods or services provided, their quantity, their price, as well as the payment terms.
The information on an invoice is:
- information relating to both parties (names, addresses, contact details);
- the date;
- provide a description of the product or service, including quantity and unit price.
- the payment deadline;
- the total amount due.
Definition of a purchase order
A purchase order, on the other hand, is a commercial document issued by a seller to a customer . It serves as official confirmation of an upcoming purchase and specifies the details of the product or service the buyer wishes to order.
Information typically found on a purchase order includes:
- information relating to both parties (names, addresses, contact details);
- the date;
- provide a description of the product or service, including quantity and unit price.
- the delivery terms.
Invoice vs. Purchase Order
Function
The invoice is usually sent after the provision of services or delivery of goods, to claim payment.
The order form is sent before the purchase. The issuance of this document by the service provider is proof that the customer’s intention to purchase is understood.
Information
The invoice includes more payment information:
- payment terms;
- possible discounts;
- payment method (transfer, check, cash, bank card);
- mention of VAT if applicable;
- payment due date.
The order form contains more details related to delivery:
- the expected delivery date;
- the place of delivery of the items;
- the terms of provision of the service.
Why is it essential to differentiate them?
Legal and tax implications
They both have distinct legal and tax implications.
- tax authorities often require the invoice to justify a company’s expenses and income.
- the purchase order constitutes a contractual commitment which forms a sales contract.
Note: A purchase order requires a customer signature, accompanied by the words “read and approved” or “good for agreement”.
Effective management of business transactions
A good understanding of these documents can also contribute to more efficient management of business transactions.
Proper use of purchase orders can help track orders and manage inventory.
Invoices can help track income and manage cash flow.
Prevention of misunderstandings and disputes
Understanding these differences can help prevent misunderstandings and disputes:
- a customer has the right to dispute a transaction if it was not initiated by a purchase order (or the signing of a quote);
- signing a purchase order constitutes a commitment on the part of the buyer;
- a detailed invoice that includes the items listed in the purchase order allows for transparent management of the commercial transaction.
Invoice vs. purchase order: the recap
You now know the main differences between an invoice and a purchase order:
- The service provider issues the purchase order and the invoice.
- signing the purchase order represents a commitment on the part of the customer;
- these documents differ in terms of function, temporality, and the level of information provided;
- They are essential to maintain a transparent and sincere business relationship between a client and a service provider.
Comparison at a Glance
| Dimension | Purchase order | Invoice |
|---|---|---|
| Timing | Before or to authorize spend | After delivery or as per contract |
| Purpose | Confirms what will be bought, quantities, price basis | Requests payment for what was supplied |
| Typical issuer | Buyer (customer) | Seller (you) |
| Legally | Commitment / authorization varies by contract | Evidence of sale; often tax and AR anchor |
| Matching | PO line ↔ receipt ↔ invoice three-way match | Must tie back to PO when AP requires it |
When to Use Each
- Use a PO when the client needs budget approval, vendor onboarding, or three-way match controls—especially enterprises and public-sector buyers.
- Use the invoice to trigger payment, accrue revenue appropriately, and satisfy tax invoice rules; always reference the PO number when one exists.
- If the client skips POs, replace the control with a signed SOW, email approval, or portal ticket—but still keep those references on the invoice for auditability.
Common Mistakes When Using Both Documents
Even businesses that understand the difference between invoices and purchase orders run into problems when the two documents do not align. Here are frequent mistakes and how to avoid them.
Issuing an invoice without referencing the PO number. Many accounts payable departments will reject or delay an invoice that does not include the corresponding purchase order number. Always ask the client for their PO number before sending the invoice and include it in a visible field on the document.
Letting the invoice totals differ from the PO amount. If the final cost exceeds the amount authorized on the purchase order, the client's AP team will flag the discrepancy. When project scope changes mid-delivery, issue a revised PO or a change order before sending the final invoice. This keeps both documents in agreement and avoids payment holdups.
Skipping the purchase order for smaller jobs. Some businesses only use POs for large transactions and handle smaller jobs with verbal agreements. This works until a dispute arises and neither party has documentation of what was agreed upon. Even for small engagements, a simple PO or written confirmation email creates a record that protects both sides.
Using inconsistent item descriptions. If the PO says "Website redesign, 10 pages" and the invoice says "Web development services," the client may struggle to match the two documents. Use the same line-item descriptions, quantities, and unit prices on both the PO and the invoice so the three-way match (PO, receipt of goods, invoice) goes through without manual intervention.
Failing to archive both documents together. Store each invoice alongside its corresponding purchase order in your filing system or invoicing software. When tax season arrives or an auditor requests documentation, having paired records saves hours of searching through separate folders.
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Frequently Asked Questions
Why differentiate between an invoice and a purchase order?
The distinction between these two documents is crucial because it defines the responsibilities of each party at different stages of the transaction. The purchase order formalizes the agreement between a service provider and a customer about goods or services. The invoice formalizes the transaction’s completion and triggers payment.
Are the invoice and purchase order mandatory?
The purchase order is optional but very useful for securing the initial agreement. In contrast, an invoice is a mandatory legal document. It is possible to create an invoice in Word or via invoicing software. These documents guarantee good data traceability.
Related resources: Explore credit invoices and learn about Billed's invoice software for streamlined billing.