AP invoice automation insights by Medius

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Purchase Order vs. Invoice - What’s the Difference?

Learn the difference between a purchase order vs. invoice and how AP automation solutions make invoicing and processing invoices and purchase orders easier.
One of the most significant differences to understand in the AP department is what is a purchase order vs. invoice. Both communicate payment terms and agreements, which are mailed or sent digitally between buyers and sellers. For the buying organization eProcurement and AP automation solutions are used to streamline and accelerate these processes.

What Is a Purchase Order?

The process begins when the buyer creates a purchase requisition (PR) outlining what they want to buy, from which vendor, and at what price. This PR is routed for internal approval within the company to ensure the budget owner approves the purchase. Once approved, a purchase order (PO) is a legally binding document created between a supplier and a buyer. It details the items the buyer agrees to buy at a specific price point. It also outlines the delivery date and terms of payment for the buyer. E-procurement systems have made the purchasing process more efficient and allow for better inventory and payment tracking.

What Is an Invoice?

An invoice is a document sent by a provider of a product or service to the buyer. The invoice is created to establish an obligation on the part of the buyer to pay for the product or service provided, creating an account receivable at the seller side. The invoice is a written or digital verification of the agreement reached between the buyer and seller. Invoices include the date of creation and when the payment is due, names and addresses of the supplier and customer, contact info and names, a description of the items purchased with quantities and prices, along with the terms of payment. In the case where a purchase order initiated the buying process, the PO number should always be included on the invoice.

What Are the Differences Between a Purchase Order and an Invoice?

The type of information provided on a purchase order differs from an invoice. A purchase order includes:

  • Date of the order
  • An internally assigned PO number
  • Description of products and services ordered
  • Name and address of buyer
  • Name and address of seller
  • Terms and conditions of the purchase
  • Signature of the authority issuing the PO

An invoice contains:

  • Date of the invoice
  • Internally assigned invoice number
  • Internally assigned PO number
  • Quantity of goods and services ordered
  • Price of each purchase
  • Discounts (if applicable)
  • Taxes (if applicable)
  • Total amount due
  • Due date
  • Name and address of the buyer
  • Name and address of the seller
  • Signature of the seller or an authorized agent

Purchase orders are created by buyers when they are ready to order products or services. Conversely, an invoice is created by the seller to request payment for the products or services provided to the buyer. As a result, a PO is sent to the seller when the order is generated, and an invoice is sent to the buyer after the order is complete. A PO acts as a contract of sale and the invoice is confirmation. Both are legally binding agreements. When a buyer issues a PO, it includes the order details and the date the order was placed. An invoice outlines the full terms of the purchase including the delivery date, terms and conditions of payment, the total price, and when the payment is due. Buyers use POs to track accounts. Sellers use invoices to stay on top of accounts receivable. 

What Role Do AP Automation Solutions Play?

From the initial purchase order to the final invoice payment, the accounts payable department must pay attention to detail. Vendor and supply contact information must be updated and accurate. Invoice matching was once a tedious process before the implementation of AP automation solutions. Matching invoice data to purchase orders, goods receipt notes or contracts is streamlined with advanced AP automation with a great matching capability to enable fully touchless invoice processing. This way, the implementation of AP automation saves time, improves accuracy, and boosts efficiency.

 

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