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. The invoice is received after the purchase. For more details on the difference between an invoice and a purchase order, here is a complete guide!
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.
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.