Purchase order vs invoice: what is the difference?
Short answer
A purchase order is the buyer’s document that orders goods or services before delivery; an invoice is the supplier’s document that asks for payment after delivery, quoting that order.
Key takeaways
- The purchase order orders; the invoice bills. The buyer sends the purchase order (PO) to the supplier before delivery. The supplier sends the invoice to the buyer after delivery, to be paid.
- The PO creates the commitment: once the supplier accepts it, both sides are bound by its quantities, prices and terms. The invoice creates the debt in the buyer’s accounts and starts the payment clock.
- The invoice should quote the PO number. That number is how accounts payable finds the order and the goods receipt and checks that the invoice asks for what was ordered and received.
- Each document has its own rules. The PO carries the commercial terms; the invoice must also meet tax law, such as Article 226 of the EU VAT Directive, or it can be returned.
- An invoice can exist without a PO (rent, utilities, an order placed by phone), and a PO can stay open without an invoice. Both cases need their own controls.
What is the difference between a purchase order and an invoice?
The difference between a purchase order and an invoice is who issues it, when, and what it asks for. The buyer issues the purchase order before delivery to order goods or services at agreed prices. The supplier issues the invoice after delivery to ask for payment, and quotes the order it bills.
In one line each: a purchase order is the numbered document a buyer sends to one supplier, with the items, quantities, prices, delivery date and terms. An invoice is the supplier’s request for payment for what it delivered, with the amounts due, the tax and the payment terms. How invoices are received, checked and paid is described in invoice processing. This page is about the difference between the two documents and how they work together.
A simple case. A hospital needs 200 boxes of gloves. Its buyer sends a purchase order to the contracted supplier: 200 boxes at 6.50 each, delivery to the central store within five days, payment at 30 days. The supplier delivers. The next day it sends an invoice: invoice number, date, the hospital’s PO number, 200 boxes at 6.50, 1,300 plus tax, due in 30 days. The PO said what the hospital wanted; the invoice says what the hospital owes.
Purchase order vs invoice: side-by-side comparison
The two documents describe the same purchase from two sides and at two moments. The table compares them point by point.
| Point | Purchase order | Invoice |
|---|---|---|
| Purpose | Order goods or services | Ask for payment |
| Issued by | The buyer (purchasing, or the system from an approved requisition) | The supplier (or the buyer under a self-billing agreement) |
| Sent to | The supplier | The buyer, usually its accounts payable team |
| When | Before delivery | After delivery, or at the dates set in the contract |
| Legal effect | An offer to buy; binding once the supplier accepts it | A demand for payment under the agreement; not an offer |
| Accounting effect | No liability yet; a commitment, and in some public bodies an encumbrance of the budget | A liability: the amount is posted to accounts payable |
| Tax role | None in VAT law | In the EU, a valid invoice is needed for the buyer to deduct VAT |
| Number | PO number, set by the buyer | Invoice number, set by the supplier; quotes the PO number |
| Amounts | Agreed prices; often no tax | Amounts due, tax rate and tax amount, total payable |
| After a mistake | A change order or new version, accepted by the supplier | A credit note, then a corrected invoice; not edited in place |
| Closes when | Everything ordered is received and invoiced, or it is cancelled | It is paid, or cancelled by a credit note |
Use the purchase order to control what the organisation commits to buy, and the invoice to control what it pays; the PO number on the invoice is what links the two.
Who issues each document, and when?
The buyer issues the purchase order, the supplier issues the invoice, and the order always comes first in a normal purchase. Between the two sit the supplier’s acceptance and the delivery. The usual sequence:
- An employee raises a purchase requisition, and it is approved. The difference between the two internal and external documents is covered in purchase requisition vs purchase order.
- The buyer sends the purchase order to the supplier, by email, through a supplier portal or as an electronic order.
- The supplier accepts the order, sometimes with an order confirmation. In the Peppol ordering standard, for example, the supplier answers with an order response: accepted, accepted with changes or rejected.
- The supplier delivers, with a delivery note that quotes the PO number. The buyer records a goods receipt, or confirms that the service was done.
- The supplier issues the invoice, quoting the PO number.
- Accounts payable matches the invoice to the order and the receipt, and pays it on the due date.
Two variations change who writes the invoice. In self-billing, the buyer draws up the invoice from its own receipt records. EU VAT law allows this only with a prior agreement between the two parties and a procedure for the supplier to accept each invoice. In a PO flip, the supplier creates the invoice from the order inside a supplier network or portal. SAP describes this on its Business Network: the supplier opens the order and turns it into an invoice that inherits the order data, then adds tax or shipping. The supplier still issues the invoice; it just does not type it again.
Disclosure: the author works as an Ivalua consultant. SAP is cited on this page from its public documentation only, to show how one system handles the two documents; this is not a comparison.
Some contracts invoice before or apart from delivery: a deposit, monthly service fees, or milestones on a project. The rule stays the same: the order or contract sets what may be billed, and each invoice asks for one part of it.
What does each document contain, field by field?
Many fields appear on both documents, because the invoice repeats the order so the two can be compared. The invoice also carries what tax law requires. The table shows the common fields and which ones accounts payable compares.
| Field | On the purchase order | On the invoice | Compared at matching? |
|---|---|---|---|
| Document number | PO number, unique to the buyer | Invoice number, unique and sequential for the supplier (EU VAT law) | The PO number is used to find the order |
| Date | Order date | Issue date; date of supply if different (EU VAT law) | Used for due dates, not compared |
| Parties | Buyer, supplier, delivery address, billing address | Supplier and customer names and addresses; supplier’s VAT or tax number | Supplier must be the one on the order |
| Reference to the other | Contract or framework reference | PO number; in Peppol e-invoices, field BT-13 holds it | Yes: the link between the two |
| Lines | Item, description, quantity, unit of measure, unit price | Same, for what is billed; on US federal contracts, line item numbers too | Yes: quantity and unit price per line |
| Amounts | Line totals and order total, often before tax | Taxable amount, tax rate, tax amount and total payable | Net amounts compared; tax checked separately |
| Terms | Delivery terms, payment terms, conditions of purchase | Payment terms and due date, early-payment discounts | Terms must match the order or contract |
| Payment details | Not needed | Bank details for payment (required on US federal invoices) | Not compared to the order; checked against supplier master data |
The PO number, the supplier, the quantities and the unit prices are what link an invoice to its order; tax data and bank details are checked on their own.
The legal minimum for an invoice depends on where it is issued. In the EU it is set by Article 226 of the VAT Directive; for US federal contracts, by the definition of a proper invoice in FAR 32.905, which requires the contract and order number. VAT law does not require a PO number, so buyers put the requirement in the order and the contract. In Peppol e-invoicing, an invoice must carry either a buyer reference or a purchase order reference. How invoices are checked against these rules is covered in invoice processing.
What does each document commit, legally and in the accounts?
The purchase order creates the agreement; the invoice creates the debt in the accounts. A PO is an offer to buy. Under US commercial law (UCC § 2-206), for example, an order for goods to be shipped promptly invites acceptance by a prompt promise to ship or by shipping. Once accepted, its quantities, prices and terms bind both sides. The invoice does not change those terms: it asks for payment under them.
| Step | Document | Typical accounting effect | Does the buyer owe money? |
|---|---|---|---|
| Order sent | Purchase order | No entry in the general ledger; in budget-controlled bodies, an encumbrance reserves the funds | Not yet |
| Goods received | Goods receipt | Stock or expense debited at the PO price; credit to a goods received / invoice received (GR/IR) clearing account | Yes, for what was received, even before the invoice |
| Invoice posted | Invoice | GR/IR cleared; the amount is credited to the supplier’s account in accounts payable; input tax recorded | Yes, and the payment due date runs |
| Invoice paid | Payment | Accounts payable debited, bank credited | No |
The goods receipt, not the invoice, is usually when the expense is recorded; the invoice turns it into a payable with a due date.
The SAP documentation describes this logic: at goods receipt the offsetting entry goes to the GR/IR clearing account, and at invoice receipt that account is cleared at the purchase order price. Open items on the account are receipts not yet invoiced, which is why month-end accruals start from it. In public bodies that use encumbrance accounting, the PO also reserves the budget, so the money cannot be spent twice.
The invoice also has two roles the PO never has. In the EU, the supplier must make sure an invoice is issued (Article 220 of the VAT Directive), and the buyer needs a valid invoice to deduct the VAT it paid (Article 178). And payment deadlines usually run from the invoice: EU public authorities must, as a rule, pay within 30 days of receiving it; UK public contracts imply payment within 30 days of receiving a valid invoice; US federal agencies, where the contract sets no date, pay 30 days after receiving a proper invoice.
How do the purchase order and the invoice meet in matching?
Accounts payable uses the PO number on the invoice to find the order, then compares them line by line. In a two-way match, the invoice is compared with the purchase order. In a three-way match, it is compared with the order and the goods receipt, so the buyer pays only for what it ordered and received. Small differences within an agreed tolerance pass; larger ones block the invoice until someone resolves them.
A worked example, with fictional figures. A purchase order asks for 500 cable reels at 4.20 each: 2,100 before tax. The warehouse receives 480 reels. The supplier invoices 500 reels at 4.30: 2,150.
| Check | Purchase order | Goods receipt | Invoice | Result |
|---|---|---|---|---|
| Quantity | 500 | 480 | 500 | Blocked: 20 reels billed but not received |
| Unit price | 4.20 | — | 4.30 | Blocked: price above the order |
| Line amount | 2,100.00 | 2,016.00 (480 × 4.20) | 2,150.00 | Payable today: 2,016.00 at most |
The order fixes the price, the receipt fixes the quantity, and the invoice is paid only where both agree with it.
Two questions go back to the supplier. The price: the order says 4.20, so the supplier issues a credit note or a corrected invoice, unless the buyer agrees a price change and amends the order. The quantity: either the last 20 reels are on their way, and the invoice waits for the receipt, or they will not come, and the invoice is reduced. The matching tolerances that decide what passes automatically, and how to set them, are covered in what is three-way matching.
Can there be an invoice without a purchase order, or a PO without an invoice?
Yes, both happen. An invoice without a PO, often called a non-PO invoice, is normal for some costs and a warning sign for others. A purchase order without an invoice is normal for a while after delivery, and a problem when it stays open.
- Invoice without a PO, expected
- Rent, utilities, taxes, some subscriptions and other costs that the procurement policy lists as exceptions. These invoices follow their own approval route, by supplier, cost centre and amount.
- Invoice without a PO, not expected
- Someone ordered by phone or email, and the supplier invoices with no order to quote. Under a “no PO, no pay” rule, accounts payable returns the invoice and asks for an order number. Raising the PO after the invoice has arrived lets it be paid but controls nothing.
- PO received but not invoiced
- Goods arrived, the invoice has not. The receipt sits on the GR/IR account and is accrued at month end. If it stays open for months, ask the supplier: the invoice may be lost, sent to the wrong address or quoting a wrong PO number.
- PO never delivered
- An open order with no receipt and no invoice still holds budget and can still be delivered. Review old open orders and cancel those that are no longer needed, with a notice to the supplier.
The share of non-PO invoices outside the listed exceptions, and the number of orders raised after their invoice, are two simple measures of whether people follow the purchasing process. Both appear in the guide to procurement KPIs.
Which documents are confused with a purchase order or an invoice?
- Quote (quotation)
- The supplier’s offer of a price before any order. The buyer’s purchase order accepts or answers it; the quote is not a request for payment.
- Pro forma invoice
- A document that looks like an invoice but is sent before delivery, often to show the expected amount for a prepayment or for customs. It is not a request for payment of a delivered supply and is not posted as a payable.
- Sales order
- The supplier’s internal record of the buyer’s purchase order. The seller keeps the buyer’s PO number on it because the buyer will ask for it on the invoice.
- Delivery note
- The paper or electronic note that comes with the goods. It quotes the PO number and the quantities shipped, and supports the goods receipt; it carries no price.
- Credit note
- The supplier’s document that reduces or cancels an invoice, for example after a price error or a return. It is matched to the invoice it corrects.
- Receipt
- Proof that a payment was made, issued after payment. Some people also call the goods receipt a receipt; in accounts payable the two are different documents.
Most mix-ups cost time at matching, not money: an invoice that quotes the requisition number or the supplier’s sales order number instead of the PO number cannot be matched automatically. Print only the PO number on what suppliers receive, and tell them in the order that invoices without it will be returned. Choosing a system that carries the PO number from order to invoice is covered in purchase order software.
Questions
Which comes first, the purchase order or the invoice?
The purchase order comes first. The buyer sends it before delivery to order goods or services at agreed prices. The supplier delivers, then sends an invoice that quotes the PO number and asks for payment. Deposits and milestone payments are billed before delivery is complete, but still under the order or contract.
Does an invoice need a purchase order number?
Tax law does not usually require one: the EU VAT Directive lists no PO number among the mandatory invoice details. Most buyers require it in their orders and contracts, because without it accounts payable cannot match the invoice automatically. US federal contracts do require the contract and order number on a proper invoice.
Is a purchase order the same as an invoice?
No. A purchase order is the buyer’s order, sent before delivery, and creates the commitment. An invoice is the supplier’s request for payment, sent after delivery, and creates the debt in the buyer’s accounts. They carry many of the same lines, so the invoice can be checked against the order.
Can a supplier send an invoice without a purchase order?
Yes, and for some costs such as rent or utilities that is normal. For other purchases, an invoice with no order usually means someone ordered outside the process. Many buyers apply a “no PO, no pay” rule and return such invoices to the supplier to ask for an order number.
What is a PO invoice?
A PO invoice is an invoice that quotes a purchase order, so accounts payable can match it to the order and the goods receipt. If everything agrees within tolerance, it can be paid without further approval. An invoice with no order behind it is called a non-PO invoice and needs its own approval.
Is a purchase order legally binding?
A purchase order is usually an offer to buy. It becomes binding when the supplier accepts it, by confirming it or by delivering. The invoice does not create the agreement; it asks for payment under it. The exact rules depend on the law that applies and on the terms attached to the order.
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