Invoice vs Purchase Order: What's the Difference?
Purchase orders and invoices both record a transaction, but they are created by different people at different stages. Understanding the difference keeps your paperwork — and your cash flow — in order.
Purchase order: the buyer's request
A purchase order (PO) is created by the buyer and sent to the seller. It says, "I want to buy these items, in these quantities, at this price." It is a commitment to purchase before any money changes hands.
Invoice: the seller's request for payment
An invoice is created by the seller after the goods or services are delivered. It says, "Here is what you ordered, and here is what you owe." It is a request for payment.
How they work together
- The buyer sends a purchase order.
- The seller fulfils the order.
- The seller sends an invoice that references the PO number.
- The buyer matches the invoice to the PO and pays.
Matching the invoice to the purchase order (and the delivery note) is called "three-way matching" and it is a simple way to catch billing errors.
Frequently asked questions
Who creates a purchase order?
The buyer creates the purchase order and sends it to the seller before the goods or services are delivered.
Does an invoice need a PO number?
If the buyer issued a purchase order, including its number on the invoice speeds up approval and payment, but it is not always required.
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