Running an eCommerce business accurately and efficiently requires a ton of documentation. All of this “paperwork” (whether printed or virtual) requires excessive time and understanding. Specifically, if your eCommerce business handles physical inventory, then you will deal with both purchase orders and invoices.
Wait, what’s exactly the difference between purchase orders and invoices?
Oftentimes, people confuse the real meaning of purchase orders (POs) and inventory, because they both handle the communication and terms of payment agreements. While POs and invoices may be printed and mailed, they are most commonly sent digitally.
So, what is the difference between an invoice and a purchase order? Read on to find out.
Purchase Order Definition
A purchase order described the specific products that your customer purchases. For example, the purchase order will detail the type and quantity of products being purchased as well as the price, customer payment amount, delivery date, and other important information. In terms of a business transaction, the purchase order must be created first, because it authorizes the seller to provide the product/service at the dictated price.
At the beginning of a business transaction, the buyer issues the purchase order. It states what the customer’s expectations are for the product/service, quantity, and price. The buyer sends the seller the purchase order for approval. After the seller approves the purchase order, it is considered a legally binding document.
Details on a Purchase Order
Purchase orders must contain certain information. The information that must be included on the purchase order includes:
- The date of the purchase
- The purchase order number
- Information to contact the vendor
- A description of the goods or services
- The number of goods or services
- Tax information,
- Any special notes
The Importance of a Purchase Order
Purchase orders are critical for eCommerce. Most commonly, eCommerce businesses will create purchase orders to send to vendors and suppliers for the products they need to purchase. Purchase orders have many benefits including:
- Strict accurate records of what you order. You can see exactly what you are ordering, when, and if the purchase was accepted. Purchase orders include important technical details that will help in record keeping.
- Accurate orders. Purchase orders help make buying more efficient and accurate. Quickly send a digital record of each item and how you want it so that the supplier can fulfill your order to the T. In the event that an issue arises, purchase orders offer you more protection.
- Speed up delivery. You can send purchase orders before you absolutely need a product so that you know the shipment will be ready by the time you need it.
- Legal protection. Purchase orders are an official agreement that is legally binding.
- Simplifies invoicing. We will get to invoicing in the next session, but purchase orders make it easier for the vendor to create an invoice.
Purchase orders and invoices are connected, but they are different concepts. Invoices are from the seller to the buyer, and they show the buyer how much money he owes the seller. The invoice explains the products that were delivered, their price, and the payment terms. eCommerce businesses commonly rely on online invoicing tools.
Invoices come after purchase orders. Purchase orders first request the goods or services and layout all of the terms. The invoice then comes after the purchase order and requests payment from the buyer. Invoices include:
- The PO number associated with it
- An Invoice number
- The Date of Issue
- Quantity of goods ordered
- The price of each item ordered
- Discounts and/or taxes
- Name and address of the buyer and seller
- Signature of the seller
- The total amount due
Invoices are used in a couple of different ways for eCommerce. For one, your vendor or supplier will send you an invoice. Additionally, you can track the goods and services that you deliver to your customer and review how much each was charged. This way, you can know which accounts are paid for and if any have outstanding balances.
In the end, invoices make it easier for you to calculate your revenue for the year and for you to pay your taxes.
Differences Between Purchase Orders and Invoices
As you can see, invoices and purchase orders are connected, however, they are different. For one the POs are prepared for the buyer, while the invoices are created by the seller. The invoice includes the price of the order, the terms/ conditions of payment, and the payment due date. On the other hand, the PO describes the order details and delivery date of the order. The seller generates the PO as soon as the customers place an order, but the invoice is created after the order is complete. You can think of the PO as a contract of the sale and an invoice as the confirmation, but both documents are legally binding.
The Best Solution for Purchase Order and Invoice Management
Both PO and invoices are common and important in eCommerce, but managing manual versions is difficult. Inventory Mirror by Listing Mirror makes it easier than ever to manage your entire warehouse, and it includes key features for purchase orders. You can automatically create purchase orders via our vendor catalogs and monitor your purchase orders and invoices through our handy mobile app. To learn more about how Inventory Mirror will help your eCommerce business manage purchase orders and invoices, start your free 14-day trial HERE.