Purchase order vs invoice

A purchase order and an invoice describe the same purchase from opposite sides and at different moments. The buyer issues the purchase order (PO) to order goods or services at an agreed price. The seller issues the invoice to be paid for what it delivered. One commits the purchase; the other bills it.

The differences

• Who sends it: the buyer sends the PO, and the seller sends the invoice.
• When: the PO comes before delivery. The invoice comes with it or after it.
• Purpose: the PO authorizes the spending and fixes the terms. The invoice asks for payment and records the sale.
• In the books: an approved PO is a commitment, not an expense, and creates no accounting entry. An approved invoice creates a liability in the buyer's accounts payable and a receivable in the seller's books.
• Tax: sales tax is charged on the invoice. In Canada, the invoice or receipt, not the PO, is the document that supports a GST/HST input tax credit.

How they connect

The invoice should quote the PO number, which lets accounts payable find the order it bills. Before paying, AP compares the invoice with the PO and with the goods received note, which is the three-way match. If the quantities or prices disagree, the invoice is held until the difference is explained. Catching those differences is the main reason businesses use POs.

Do you need both?

Every purchase that is paid for needs an invoice or receipt. A PO is optional: many businesses require one only above a set amount or for certain categories, and skip it for utilities, subscriptions and small card purchases.