Learning how to manage your income will produce rewarding results for you. And depending on your style or business, it’s important to know the various methods available to you.

When it comes to your financial paperwork, invoices and purchase orders are some of the main documents you’ll encounter on a daily basis in your business

To gain the most from them, you’ll have to understand the differences. And this is what this article will help you do.

So, let’s dive in.

What is a purchase order?

A purchase order is a document issued by a buyer(or purchaser) to a vendor or seller highlighting the desired types and quantities of products.

It’s a great way for companies and businesses to ensure they don’t spend over their budget. Having them in place ensures you’re not overbilled and reduces the chances of any errors.

There are two main ways businesses handle purchase orders; manually and automated.

A manual process can create more errors for you downline. For example, you can have duplicate payments sent to a seller.

An automated process on the other hand, erases this problem. Using this process is very helpful because it’s common to find businesses that struggle with purchase order errors.

Why do businesses use purchase orders?

Like we said earlier, purchase orders are an effective way to maintain a company’s budget.

And an automated process is your best in keeping track of your expenses.

In addition to this, it reduces human mistakes and the length of time it takes you to track your spending.

Another huge benefit is that it offers legal protection and prevents audit problems.

Also, it allows you the freedom to manage your business from anywhere in the world.

The process of using purchase orders

This section details the steps that goes down during a purchase order process:

• Step 1:  A requisition otherwise known as a “request to purchase” is sent to a business for approval.
• Step 2: Once it’s approved, a purchase order is created showcasing the specifics of an agreement.
• Step 3: Double-check the receipt and the quality of the product.
• Step 4: Fulfilment of payment and delivery

What’s included on a purchase order?

A  purchase order details everything that occurs between a buyer and a seller during a specific activity.

This document includes:

• Date of order
• Price per product/service
• Purchase order number
• Name of product/service
• Name and address of buyer and seller
• Time frame of payment
• Terms and conditions
• Additional terms and discounts
• Quantity of product/service

Who creates purchase orders in a company?

It all boils down to the business size. A larger company will have a Purchasing Department to handle the creation of purchase orders.

While in smaller companies, it’s usually the requester that creates the purchase order.

Difference between a purchase order and an invoice

Both documents cause a bit of confusion for some people.

The major differences involves two things;

• What they contain
• Why and how they’re used.

What they contain.

Purchase orders are sent from a buyer to the seller. It’s a detailed document that displays the amount, type of product needed plus the pricing.

Once a purchase order is approved, an invoice is sent to the buyer containing extra details like invoice number, payment schedule and total amount to be paid.

Why and how they’re used

Purchase orders are sent to order a particular product or service. While an invoice is sent to request payment for ordered items.

Purchase orders come from the buyer while invoices are sent by the seller.

Purchase orders are used to track spending and budgeting in a company so too much doesn’t leave. While invoices ensure cash flows into the company so it can expand and grow.

Now, it’s time to zoom in on what an invoice is and how you can use it.

What is a sales invoice?

A sales invoice is a document issued by a seller to a buyer that shows the total amount to be paid for specific products or services.

They ensure a business has enough to cash to stay healthy.

What’s included on an invoice?

An invoice contains specific details so buyers know what they’re paying for.

It includes:

• Date of issue
• Invoice number
• Purchase order number
• Name and address of buyer and seller
• Total amount due
• Quantity of of products/service
• Price of products/services
• Discounts and credits.

Why are invoices important?

Invoices are useful to every business they are an excellent way to establish cash flow.

With an invoice, you get paid on time, possess legal protection, find it easier to manage payments and trail audits

Who sends out an invoice in a company?

This is pretty straightforward. The seller of the product or service creates and sends out an invoice so they can get paid.

Depending on your preference, you can send either a paper or electronic invoice.

How you can manage business invoices.

The simple way to do this is by using invoice softwares available.

This will enable you to quickly create, keep and track records.

Similarities between purchase orders and invoices

While there are a ton of differences like we mentioned earlier, you can still pull out a few similarities.

For example, they’re both legally binding and offer legal protection.

They also contain agreements between a buyer and a seller plus specific details needed to push the transaction forward and easily

When to decide which one to use?

By now, you’ve probably noticed the importance both documents possess.

Deciding which one to use in your business or company depends on which end of the buying stick you are.

If you’re a buyer looking to get a product or service for your business, then you’ll be creating and sending out a purchase order.

On the other hand, if you’re selling a product or service so you can inject money into your business, then you’ll be handing out invoices to various clients and customers so they can pay up on time.