Purchase Order vs Invoice: What’s the Difference?

A purchase order is issued by the buyer before goods or services are supplied – it's a formal request that sets out what you want, quantities, prices, and delivery terms. An invoice is issued by the seller after delivery – it's a request for payment confirming what's been provided and how much is owed.

Any confusion around POs and invoices is understandable. When you're running your own business, it's easy to get tangled up in the paperwork. While POs and invoices might look similar at first glance, mixing them up can cause problems with your cash flow and record-keeping.

Below, we'll explain exactly how each one works and why getting them right matters for your business.

What is a purchase order?

A purchase order is a document created by the buyer. It sets out exactly what you're asking a supplier to provide, and it acts as a formal request to purchase goods or services. Think of it as a way of saying: here's what we want, when we want it, and the price we've agreed.

A PO typically includes:

• A clear description of the goods or services requested
• Quantities required
• Agreed unit price or overall cost
• Delivery dates and shipping details
• Payment terms

Purchase orders are more than just a shopping list. They're a binding agreement once accepted by the seller, meaning both sides have legal protection if disputes arise later. They're also important for tracking orders and keeping budgets in check.

Because they show the intent to buy, POs become a key part of your financial records. They're often used in audits, and they help make sure your spending is properly authorised within your team before any money leaves the business.

What is an invoice?

The seller, not the buyer, creates an invoice. It's a payment request that confirms what has been delivered or completed. In other words, it's the supplier's way of saying: 'Here's what we've provided, and here's how much you need to pay us.'

Invoices usually include:

• A breakdown of the goods or services supplied
• The total amount owed
• The date the invoice was issued
• Payment due dates and bank details
• VAT information if the seller is VAT-registered

Invoices are a legal requirement for VAT-registered businesses, but even if you're not VAT-registered, they're essential for your records. They make sure you can account for sales and claim expenses correctly.

For sellers, invoices are vital for managing cash flow. Without them, you can't chase payments or keep track of what you're owed. For buyers, receiving and processing invoices correctly ensures you don't end up with duplicate payments or missed expenses in your accounts.

Key differences between purchase orders and invoices

The simplest way to think about it is: purchase orders come first, invoices come after. A PO sets the terms of a deal, while an invoice confirms it has been carried out and requests payment.

Here's a quick comparison of invoices vs purchase orders:

Do you always need a purchase order before an invoice?

Not always. Smaller suppliers or freelancers often work without formal POs, relying on email agreements or contracts instead. However, for bigger companies or government contracts, POs are often mandatory. Using them can reduce disputes and make bookkeeping easier (even if they're not strictly required).

Why businesses use invoices and purchase orders

Both documents play a part in making sure transactions run smoothly. Together, they provide a full paper trail from start to finish.

Here's why they're useful:

• They reduce the chance of disputes about what was ordered or how much is owed.
• They create a clear audit trail, which is important for tax compliance.
• They make budget management easier, as you know what's committed versus what's already paid.
• They reduce the risk of fraud, duplicate orders, or double payments.
• They help keep supplier relationships transparent and professional.

Can a seller issue a purchase order instead of a buyer?

No. A purchase order is always raised by the buyer. The seller responds to it, usually by confirming the order or issuing an invoice once the goods or services have been supplied.

How purchase orders and invoices work together

Even though they're very different documents, POs and invoices complement each other. A purchase order starts the transaction, and the invoice completes it. When your finance team (or you, if you're handling things yourself) match up invoices with POs, it creates a reconciliation process that keeps your books accurate.

This matching process is especially important for VAT records and audits. It ensures that what you've paid for is exactly what you ordered, at the agreed price. If something doesn't match up, you have the paperwork to resolve the issue.

How do purchase orders and invoices affect cash flow management?

Both POs and invoices tie directly into your cash flow. A PO shows what money you've committed to spend in the future, while an invoice is the trigger for money actually leaving your account. On the other hand, issuing invoices is how you bring cash into your business.

The gap between issuing an invoice and receiving payment can create pressure. If your customers take 30 or 60 days to pay, but you've got suppliers chasing you sooner, it can leave you short of working capital.

Boost your working capital with an iwoca business loan

The difference between a purchase order and an invoice isn't just about paperwork. It's about keeping your finances organised, protecting yourself legally, and managing your cash flow confidently.

By making sure you use both documents effectively, you'll cut down on errors, reduce disputes, and make your life easier when tax season comes around. And if you ever find yourself short on working capital, stuck between paying suppliers and waiting for customer payments to land, we're here to help.

Learn more about iwoca’s Business Loans and see how they can keep your cash flow moving.

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