Blog Accounts payable No. 04
Purchase order vs invoice: what each one does
A purchase order and an invoice often list the same items at the same prices, so they are easy to confuse. They come from opposite sides of the sale and do different jobs.
Who sends what, and when
| Purchase order | Invoice | |
|---|---|---|
| Sent by | The buyer | The supplier |
| Sent when | Before the goods or services are supplied | After, or at the time of, supply |
| Says | "We want to buy this, on these terms" | "You owe us this much for what we supplied" |
| Creates | An offer, which becomes a contract when accepted | A request for payment |
| Numbered by | The buyer's system | The supplier's system |
The purchase order comes first. It sets out what the buyer wants, the agreed price, where to deliver and on what terms. Once the supplier accepts it, by confirming or by delivering, both sides are bound by it.
The invoice comes later. It records what was actually supplied and asks for payment.
What each must contain
A purchase order has no fixed legal form. In practice it carries an order number, a date, the buyer and supplier, delivery and invoice addresses, the lines with quantities and prices, totals and payment terms. Our guide to the fields on a purchase order goes through them.
An invoice has more rules around it, because it is a tax document. In the UK a full VAT invoice must show, among other things, a unique invoice number, the supplier's name, address and VAT registration number, the invoice date and the time of supply if different, the customer's name and address, a description of the goods or services, and the VAT rate and amount. HMRC publishes the full list in its guidance on VAT invoices.
Why they have to agree
The buyer pays an invoice only when it matches the order: the same PO number, the same items, the same prices, and quantities no greater than ordered and received. A mismatch puts the invoice on hold until someone works out why.
This check is called matching. Two-way matching compares the invoice with the purchase order. Three-way matching adds the goods received note, so the buyer pays only for what actually arrived.
For a supplier, this means the purchase order is not just a request to fulfil. It is the template your invoice will be judged against. The PO number has to be copied exactly. The customer's part numbers and descriptions help their accounts team match lines. Prices must be the ones on the order, not a newer price list.
Where errors come from
Most invoice queries trace back to the order being read or keyed wrongly at the start:
- the PO number typed with a digit missing;
- a line keyed with the wrong quantity or unit;
- delivery made to the invoice address, so goods received cannot be matched;
- a revised order processed as a new one, so items are supplied twice.
Getting the order right when it arrives prevents most of them. That is the step VioPO is built for: it reads the order exactly as printed, checks that its figures add up, and flags anything that does not.