Purchase order vs invoice: what's the difference?

A purchase order (PO) is what a business sends a supplier to place an order, before anything is delivered. An invoice is what the supplier sends back to ask for payment, after delivery. So the PO comes first and commits the money, and the invoice comes second and asks for it. The PO number written on the invoice is what links the two.

Which side you're on decides what matters most. If you place orders, a PO is how you control what your company spends. If you supply other businesses, the invoice is when your wait to be paid starts, often a month or more, and that wait is where cash flow gets tight.

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What is a purchase order?

A purchase order is the document your company sends a supplier to say what it wants to buy, how many, at what price and by when. Once the supplier accepts it, a PO usually becomes a binding contract.

A PO typically includes:

• A description of the goods or services
• Quantities
• The agreed unit price or total cost
• Delivery dates and address
• Payment terms
• A PO number

It also works as a control inside your business: spending is approved before money leaves the account, and your accountant or auditor can see what was ordered and why.

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What is an invoice?

An invoice is the supplier's request for payment for goods or services already delivered. UK invoices have to include set details, and if you and your customer are both VAT-registered it must be a VAT invoice.

According to gov.uk, every invoice must show:

• A unique identification number.
• Your company name, address and contact details.
• The company name and address of the customer.
• A clear description of what you're charging for.
• The date the goods or services were supplied, and the date of the invoice.
• The amounts charged, any VAT and the total owed.

A limited company must use its full name as it appears on its certificate of incorporation. A VAT invoice adds your VAT registration number, the unit price, the VAT rate and the total VAT in sterling (VAT Notice 700/21, last updated 18 March 2024). Each of these is covered step by step in how to write an invoice.

If you're the supplier, the invoice is how you get paid and keep managing cash flow: without one, you can't chase what you're owed. If you're the customer, logging each invoice properly stops you paying twice or missing an expense.

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What is a purchase invoice?

A purchase invoice is an invoice your company receives from a supplier. It isn't a different document. It's the same invoice, seen from your side.

Your supplier records it as a sales invoice, because it's money coming in. You record it as a purchase invoice, because it's money going out. A purchase order is something else again: you send that before the sale, and the invoice comes back after it.

If you're VAT-registered, HMRC asks you to keep copies of every sales invoice you issue and every purchase invoice you receive (gov.uk).

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What is a PO number?

A PO number is the reference your customer gives each purchase order. You quote it on the invoice so their accounts team can match your bill to an order they've approved, and pay it.

An invoice without the PO number can sit in a queue while someone works out which order it belongs to. So ask for the number when you take the order, and put it in the invoice reference.

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Key differences between purchase orders and invoices

The purchase order comes first and comes from the business placing the order. The invoice comes after delivery and comes from the supplier. A PO commits to spend, and an invoice asks for the money.

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Do you always need a purchase order before an invoice?

A PO is a control the customer chooses to use, not a legal requirement, so you can invoice without one. But if your customer uses POs, their accounts team may not pay an invoice without the PO number on it, so ask for it before you invoice.

Plenty of smaller businesses work from a signed quote or an email confirming the order instead. That's fine, as long as both sides have the price and terms in writing.

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How purchase orders and invoices work together

A PO starts the deal and the invoice closes it. Between them, both sides have a written record of what was agreed and what was delivered, which settles most disputes before they start. They also give you an audit trail for tax (VAT records need to be kept for at least six years) and cut the risk of duplicate orders and double payments.

Here's how a typical order between two businesses runs:

1. The customer sends a purchase order with a PO number.
2. The supplier accepts it, often with an order confirmation.
3. The supplier delivers, with a delivery note.
4. The supplier sends an invoice quoting the PO number.
5. The customer checks the three documents match and pays on the agreed terms.

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What is three-way matching?

Three-way matching is that check in step 5. Before paying, the customer compares the PO, the delivery note and the invoice: what was ordered, what arrived and what's being charged. If one doesn't match, the invoice is usually held until it's fixed.

If you place orders, it's a simple control: nobody pays for something that wasn't ordered or didn't arrive. If you supply them, it's why a short delivery or a missing PO number can hold up your payment.

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Why the gap between invoice and payment matters

Unless your customer pays when they order, you've delivered the goods and you're still waiting for the money. If no payment date is agreed, the law says a business payment is late 30 days after the customer gets the invoice, and agreed terms must usually be within 60 days (gov.uk). Selling on those terms means you're offering trade credit, and funding it yourself until the customer pays.

Worked example (illustrative figures). A limited company wholesaler takes a £12,000 order from a trade customer on 30-day terms:

That's a month where the wholesaler has paid for the stock, delivered it and can't use the £12,000, and longer if the wait between invoicing and getting paid runs over. Meanwhile wages, rent and the next supplier bill still fall due.

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How iwoca helps with the wait

We help businesses on both sides of this gap, in two different ways. Which one fits depends on what you need: to get paid sooner by your customers, or to have cash in hand while you wait.

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Get paid up front with iwocaPay

iwocaPay is a way for your trade customers to pay you. You add a pay link to the invoice, from the iwocaPay dashboard, your Xero invoice or your WooCommerce or Magento checkout. Your customer then chooses to pay now by bank transfer, or to pay later over one, three or 12 months.

If they pay later, we check their credit, usually in seconds, and pay you the full amount straight away. Your customer repays us, not you, and we carry the risk if they don't, so there's nothing for you to chase. In the example above, the wholesaler would be paid on day 8 instead of day 38.

There are no set-up fees. You choose who pays for it: either you pay a fee on each transaction and your customer pays no interest, or it's free for you and your customer pays interest.

Not every customer will use it. If their accounts team only pays by bank transfer against a matched PO, they'll pay on their usual terms instead.

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Cover the gap yourself with a Flexi-Loan

An iwoca Flexi-Loan is a business loan with flexible repayment options, and it suits gaps like this one. It works whichever side you're on: a supplier waiting on an invoice, or a customer who has to pay for stock before its own customers pay.

You can borrow from £1,000 to £1 million. Interest is charged only on what you owe, and you can repay early with no fees, so a loan that covers a 30-day wait costs a month's interest, not a year's. On the £12,000 in the example, that's about £400 at our representative rate of 3.33% per 30 days. Your own figures depend on your business, and the business loan calculator shows what they'd be.

Many of our customers only take out our finance for a few weeks, or even days. VCare24, a social care provider, waits for local authorities to pay for care it has already delivered. Victoria Simpson draws around £200,000 to cover payroll and pays it back within a week as the payments come in.

Terms run from 12 months to five years, with no fee for repaying early, and you'll get a decision within 24 hours, but it might be longer depending on the complexity of the request. Every new Flexi-Loan needs a personal guarantee from at least one director, so make sure the repayments fit your cash flow before you apply.

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Purchase order and invoice FAQs

Is a purchase order legally binding in the UK?

A purchase order is usually legally binding once the supplier accepts it, in writing or by starting the work. Before that, it's an offer the customer can withdraw. If the supplier replies with its own terms, it can be unclear whose terms apply, so check this before you start (this isn't legal advice).

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Do purchase orders include VAT?

A PO can show VAT, but it isn't a VAT document. Only a valid VAT invoice lets your customer reclaim VAT. HMRC won't accept a pro forma invoice, a statement or a delivery note (gov.uk).

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Is an order confirmation the same as an invoice?

An order confirmation isn't an invoice. It's the supplier accepting the order, sometimes called a sales order, and the invoice comes later to ask for payment.

A receipt is different again: it proves you've paid. When you buy online, the first email is usually the order confirmation.

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Can a supplier issue a purchase order?

A supplier can't issue a purchase order: it always comes from the business placing the order. The supplier replies with an order confirmation, then an invoice once the goods or services have been supplied.

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Close the gap between order and payment

For many limited companies, the time between delivering an order and being paid for it is where cash runs short. If you're waiting on a customer, or paying a supplier before your own customers pay you, a Flexi-Loan can cover it, and you can clear it as soon as the money arrives. You can check your eligibility in a few minutes.

If you sell to trade customers on terms, iwocaPay can get you paid when they check out instead.