Explaining the Difference Between Purchase Order and Invoice in Accounts Payable Processes

Understanding the distinction between a purchase order and an invoice is central to efficient Accounts Payable processes. The key difference lies in their respective roles and timing within the procurement cycle.

What is a Purchase Order?

A purchase order (PO) is a legal document issued by a buyer to a supplier, outlining the specific products or services to be purchased, quantity, price, and terms of the agreement. It serves as a formal authorization for the supplier to deliver the goods or services as per the agreed terms.

What is an Invoice?

An invoice is a commercial document issued by a supplier to the buyer, detailing the products or services provided, quantity, price, and payment terms. It serves as a request for payment for the goods or services rendered.

Key Differences:

• Timing: A purchase order is issued before goods or services are delivered, whereas an invoice is sent after delivery.
• Authorization: A purchase order authorizes the supplier to proceed with the delivery, while an invoice requests payment for the delivered goods/services.
• Legal Status: A purchase order is a legally binding document that initiates the transaction, while an invoice is a request for payment.

Ensuring proper documentation and understanding the roles of purchase orders and invoices are essential for maintaining accurate financial records and effective cash flow management in Accounts Payable processes.

For more insights on Accounts Payable processes and how purchase orders and invoices impact financial transactions, contact us today!