Purchase Order vs Invoice — When to Use Each

Understand the critical difference between purchase orders and invoices, how they work together in the procurement cycle, and why getting it right prevents costly disputes.

Instant Sheet Templates Editorial Team · 7 min read · 2025-03-25

Purchase Orders and Invoices: Two Sides of the Same Transaction

A purchase order (PO) and an invoice are both essential business documents, but they serve opposite purposes in a transaction. A purchase order is sent by the buyer to the seller, saying "I want to buy these items at these prices." An invoice is sent by the seller to the buyer, saying "Here's what you owe for the items I delivered." Together, they create a complete, auditable transaction record.

What Is a Purchase Order?

A purchase order is a formal document issued by a buyer authorizing a purchase. It specifies the items or services being ordered, quantities, agreed prices, delivery requirements, and payment terms. Once the seller accepts a PO, it becomes a legally binding contract.

Key Elements of a Purchase Order

• PO Number: A unique identifier for tracking and reference
• Vendor Information: The supplier's business details
• Line Items: Detailed list of products/services with quantities and unit prices
• Delivery Terms: Ship-to address, expected delivery date, shipping method
• Payment Terms: When and how payment will be made
• Authorization: Signature of the person authorized to commit the company's funds

When to Use Purchase Orders

Use POs when ordering materials or supplies from vendors, engaging subcontractors for specific scopes of work, making any purchase over a threshold you set (many businesses use $500), or anytime you need a paper trail for procurement.

How POs and Invoices Work Together

The procurement cycle flows like this:

1. Buyer creates PO → sends to vendor
2. Vendor accepts PO → confirms pricing and delivery
3. Vendor delivers goods/services → references PO number
4. Vendor sends invoice → references PO number
5. Buyer matches invoice to PO → verifies quantities and pricing
6. Buyer processes payment → completes the transaction

This three-way match (PO → delivery receipt → invoice) is the gold standard for procurement controls. It prevents overbilling, unauthorized purchases, and duplicate payments.

Common Mistakes That Create Disputes

Not Using POs for Verbal Orders

Many disputes arise from verbal orders without written POs. The buyer remembers ordering 100 units at $5 each; the vendor remembers 100 units at $7 each. Without a written PO, there's no way to resolve this definitively.

Mismatched PO and Invoice Details

When the invoice doesn't match the PO — different quantities, unexpected charges, or missing PO references — it triggers delays. Accounts payable departments routinely hold mismatched invoices until discrepancies are resolved.

Skipping the PO Process for "Small" Purchases

Small, undocumented purchases add up. A $200 order here and a $300 order there, without POs, creates accounting gaps and makes budget tracking unreliable.

Create Professional POs and Invoices

Generate professional purchase orders with our free PO Generator tool — fill in your details and download a clean PDF instantly. Pair it with our Invoice Generator for a complete procurement documentation system.