What is the difference between a purchase order and an invoice?

The buyer raises a purchase order before delivery to say what they want and at what price. The seller raises an invoice afterwards to ask for payment.

Is a purchase order legally binding?

Once the supplier accepts it, it generally forms a contract on the terms stated. Which is why the price, quantity and delivery date should all be on it.

Do I need purchase orders as a small business?

Not legally, but they are the simplest way to stop unauthorised spending and to have something to check an invoice against.

What is a PO number for?

It is the reference that ties the order, the delivery and the invoice together. Ask suppliers to quote it on their invoices.

Can I change a purchase order after sending it?

Issue a revised order with the same number and a revision marker, or cancel and reissue. Do not let two versions of the same number circulate.

Free Purchase Order Template

A blank PO with a number and delivery address. Print it and complete it by hand, or let the generator fill it in for you.

Download the blank PDF Fill it in instead

What a purchase order does

A purchase order is the buyer's document. It is a formal instruction to a supplier to provide something at an agreed price, and it is raised before anything is supplied.

An invoice is the seller's document and comes after. The two are matched on the purchase order number, which is why a supplier who invoices without quoting it usually waits longer to be paid.

For a small business the value is control: nothing gets ordered without a number, so nothing arrives that nobody agreed to buy.

What to put on it

The words purchase order and a unique PO number.
The date it was raised.
Your business details and the supplier's.
The delivery address, which is often not the billing address.
A line for each item: description, part or catalogue number, quantity, agreed unit price and line total.
The delivery date required.
The payment terms you have agreed.
The name of the person authorising it.

Send it to the supplier and keep your copy. When the invoice arrives, check it against the order line by line before it is approved.

Three way matching, without the software

The discipline large firms use is simple enough to do on paper: match the purchase order, the delivery note and the invoice before you pay.

The order says what you agreed to buy. The delivery note says what actually turned up. The invoice says what you are being asked to pay for. If all three agree, pay it.

Where they disagree, the difference is either a short delivery, a price that moved without being agreed, or a duplicate invoice. All three are common and all three are cheaper to catch here than at the year end.

Numbering and authority

Number orders in a single sequence. If more than one person can raise them, prefix by person or department rather than running parallel sequences.

Set a value above which an order needs a second signature, and write the limit down. It is the cheapest internal control there is.

Cancel an order in writing if it is no longer needed. An open purchase order is an open commitment, and suppliers do eventually deliver against them.

Questions

What is the difference between a purchase order and an invoice?: The buyer raises a purchase order before delivery to say what they want and at what price. The seller raises an invoice afterwards to ask for payment.
Is a purchase order legally binding?: Once the supplier accepts it, it generally forms a contract on the terms stated. Which is why the price, quantity and delivery date should all be on it.
Do I need purchase orders as a small business?: Not legally, but they are the simplest way to stop unauthorised spending and to have something to check an invoice against.
What is a PO number for?: It is the reference that ties the order, the delivery and the invoice together. Ask suppliers to quote it on their invoices.
Can I change a purchase order after sending it?: Issue a revised order with the same number and a revision marker, or cancel and reissue. Do not let two versions of the same number circulate.