The terms “purchase order” and “invoice” are often used interchangeably when referring to bills for a product or service. As a result, many small business owners use them incorrectly. Purchase orders are different from invoices. By familiarizing yourself with their nuances, you’ll create cleaner financial records.
What Is a Purchase Order?
A purchase order (PO) is a document used by businesses to confirm the purchase of an order. When a customer places an order, he or she may send your small business a PO. Among other things, the PO reveals the type of product or service being purchased, the quantity and date. Regardless, all POs confirm the purchase of an order, which is why they are called “purchase orders.”
It’s important to note that there are also standing POs. What is a standing PO exactly? A standing PO is the same as a regular PO — except it’s used for long-term customers who make multiple purchases. With a standing PO, you can reuse the same PO number for a specific customer. It’s an easier and more efficient way to track purchases from repeat customers.
What Is an Invoice?
An invoice, on the other hand, is a document requesting payment for an order. While POs are typically created by customers, invoices are created by businesses. During a typical transaction, a customer may send your small business a PO containing the products or services he or she wishes to purchases. In response, you can then send the customer an invoice requesting payment for the customer’s desired products or services. Once the customer receives the invoice, he or she can send payment, at which point you can then deliver or complete the product or service.
Both POs and invoices contain details about a specific order. The primary difference between them is that POs confirm the purchase of an order, whereas invoices request payment for an order. Some of the information contained in an invoice includes the product or service purchased by the customer, the quantity, the date and the PO number.
Converting POs to Invoices
Assuming you use Quickbooks, you can easily convert POs to invoices. Intuit’s popular accounting software supports PO-to-invoice conversions. Rather than manually creating an invoice for each PO, you can set up Quickbooks to automatically create invoices based on the information contained in a customer’s PO.
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