Purchase Orders and Invoices: What’s the Difference?

Posted 2 years ago in Small Business Tips
by Brad Hanks

Understanding all of the paperwork you need to file for your new business can be a little confusing at first. And if you’re a business that deals with physical inventory, you’ll likely be juggling both purchase orders and invoices—but what exactly is the difference between the two? In this post, we’ll explain how each is used, the differences between them, and how they can help your business run smoothly.

What is a purchase order?

A purchase order (PO) is a document that states the types and quantities of products being purchased by your customer. It also includes the prices of each item, how your customer will pay, the delivery date of the order, and other terms and conditions.

If you have long term customers who order the same products frequently, they can create what is called a “standing purchase order.” A standing PO makes it possible for that customer to order the same products or services multiple times over a period of time using the same PO number.

A PO generally includes:

  • Date of order
  • PO number
  • Details of products ordered
  • Name and address of buyer
  • Name and address of seller
  • Terms and conditions
  • Signature of issuing authority

How are purchase orders used?

POs are used to tell a supplier how much of a product to deliver to the customer and when the customer will pay for the goods they receive. If managed efficiently, your PO database will help you track how much inventory you’ve sold to each of your customers, when invoices are due from those customers, and when you need to reorder inventory from your own supplier or manufacturer.

Your PO history will also help prevent you from overstocking your inventory, prevent orders from being mixed up, and ensure that your customers receive their orders on time.

What is an invoice?

Invoices are used in conjunction with purchase orders to indicate how much money the buyer owes to the seller. Invoices are also commonly referred to as “bills,” “statements,” or “sales invoices.”

An invoice usually describes the products that were delivered to the customer, the price of those products, and the payment terms. Most modern-day businesses use an online invoicing tool (like ZipBooks!) to send invoices and receive payment from customers.

An invoice generally includes:

  • Date of issue
  • Invoice number
  • PO number
  • Quantity of goods ordered
  • Price of each good purchased
  • Discounts (if applicable)
  • Taxes (if applicable)
  • Total amount due
  • Name and address of buyer
  • Name and address of seller
  • Signature of seller or authorized agent

How are invoices used?

Used properly, invoices can help small businesses track revenue and expenses, and provide a written record of the goods and services delivered to your customers and how much each customer was charged, making it easier to tell which accounts are complete and paid for, and which accounts still have outstanding balances.

Keeping an accurate invoice database also makes it easier to pay your business taxes, because it will show exactly how much revenue you collected during the tax year.

An intelligent online invoicing system can also schedule payment reminders for your customers and notify you when payments are received so you don’t have to send awkward emails when it’s time to collect your money.

What are the similarities and differences between invoices and purchase orders?

  • The PO is prepared by the buyer when they order goods or services, while an invoice is created by the seller to request payment for the goods sold.
  • The PO is sent to the seller, while the invoice is sent to the buyer.
  • The PO lists the order details and the delivery date of the order, while an invoice includes the price of the order, terms and conditions of payment, and the payment due date.
  • A PO is generated when the customer places the order, while an invoice is generated after the order is complete.
  • A PO details the contract of the sale, while an invoice confirms the sale.
  • Both the PO and the invoice include details about the order and shipping specifics, but the invoice also includes the invoice number, date of delivery, and PO number.
  • Both the PO and the invoice are legally-binding documents.

How to make invoicing customers easier than ever

ZipBooks free online invoicing app makes invoicing your customers for goods or services easy. In just a few clicks, you can send custom invoices to your clients, get paid via credit card, PayPal, or Stripe, and get notified when your customer pays their balance.

Learn more about how to automate your business with free invoices.

About Brad

Brad Hanks is in charge of Growth at ZipBooks.

Privacy Preference Center