Purchase order (PO) vs. invoices: Key differences explained

Purchase orders (POs) and invoices work together to document and control a business transaction from request to payment. A PO starts the process by detailing what you intend to purchase, while an invoice confirms what the vendor delivered and how much you owe. Using both documents helps your business keep spending organized, prevent errors, and maintain accurate financial records.

Purchase orders vs. invoices: Key differences and similarities compared

Before diving into the details of purchase orders and invoices, here’s a quick summary of their key differences:

The main difference between purchase orders and invoices is their timing and purpose in a transaction. A PO comes first, ensuring the buyer formally approves a purchase before committing to payment. An invoice comes after, confirming what was delivered and requesting payment from the buyer.

In contrast, both documents are similar because they record transaction details, help track financial commitments, and provide documentation for auditing and dispute resolution. Together, they establish a structured purchase and payment process, ensuring clarity and accountability for both parties.

POs vs. invoices: Legal and financial implications

A PO becomes legally binding once the vendor accepts it, while an invoice is legally binding as a request for payment under agreed terms. Legally, POs protect buyers by defining expectations upfront, and invoices protect vendors by documenting what was delivered and what is owed.

Financially, these documents support smoother accounts payable processes, reduce disputes, and help businesses maintain accurate records and budgets.

Purchase orders: Definition, importance, and use cases

What is a purchase order?

A purchase order (PO) is a legally binding document your business sends to a seller to request specific goods or services. Once the vendor accepts it, the PO becomes a contract that outlines what you’re buying, the price, and the expected delivery. Using POs formalizes requests before you commit to spending, strengthening internal controls and reducing surprises during fulfillment.

What is included in a purchase order?

A purchase order outlines the key details of what you’re buying. More specifically, it should include:

• Items or services requested: Product names, descriptions, or service details
• Quantity: The number of items or hours of service
• Price per unit: Agreed-upon cost per item or service
• Total amount: The full cost of the order before taxes and fees
• Payment terms: When and how the supplier should be paid
• Delivery details: Expected delivery date and shipping address

Why are purchase orders important?

A purchase order does more than document a transaction, helping businesses stay organized, control spending, and prevent disputes. Here’s why POs matter:

• Prevent misunderstandings: Both parties agree on order details before the transaction begins
• Improve budgeting: Businesses track expected expenses and prevent overspending
• Enhance financial control: POs provide a paper trail for auditing and compliance
• Support vendor relationships: Clear terms reduce disputes and streamline procurement

When do companies use purchase orders?

Companies issue purchase orders before making a purchase to formalize the procurement process and set clear expectations with vendors. They’re commonly used in situations such as:

• After purchase requisition approval: A PO is created once an internal request for goods or services has been reviewed and authorized
• When selecting a vendor: After comparing vendors, a PO is issued to the chosen supplier to confirm the order
• To release goods under a blanket purchase order: When a company has an ongoing contract with a supplier (a blanket PO), individual orders draw from the agreed terms as needed

However, not all purchases require a PO. Businesses often waive them for low-cost or routine items, like office supplies or employee refreshments, where formal documentation isn’t necessary.

Who issues purchase orders?

The buyer—your company—issues a purchase order before the transaction to start the procurement process and formally request a product or service. POs are commonly issued in situations such as:

• After purchase requisition approval: A PO is created once an internal request has been reviewed and authorized
• When selecting a vendor: After comparing options, the chosen supplier receives the PO to confirm the order
• To release goods under a blanket purchase order: For ongoing supplier agreements, individual orders draw from the blanket PO’s terms as needed

In most mid-sized businesses, a purchasing team handles vendor sourcing and PO creation, while procurement oversees the broader workflow. Other teams involved include the requisitioner (the department making the request), approval managers, and accounts payable (AP), who use POs to validate invoices during review.

Invoices: Definition, importance, and use cases

What is an invoice?

An invoice is a request for payment that a seller sends to a buyer after fulfilling an order. It confirms what was delivered and explains how and when the buyer should pay. More specifically, an invoice includes:

• Request for payment: A formal bill that states the amount owed for goods or services provided
• Seller: The business or person requesting payment
• Buyer: The business or person responsible for making the payment
• Sent after an order is fulfilled: Proof that the seller completed their part of the transaction
• Includes payment details: The total amount due, the due date, and accepted payment methods

What is included in an invoice?

An invoice should include the key details a buyer needs to understand the bill. Most invoices contain:

• Invoice number: A unique identifier for tracking
• Vendor details: Business name, address, and contact information
• Buyer details: The company responsible for payment
• Itemized list: Description of the goods or services provided
• Total amount due: Including applicable taxes, fees, or discounts
• Payment terms: The due date and acceptable payment methods

Who issues invoices?

A vendor, such as a supplier, manufacturer, or service provider, issues an invoice once the transaction is complete to request payment from the buyer. Invoices are commonly issued in situations such as:

• When goods are shipped or delivered: Sent after products arrive to confirm the transaction and request payment
• For card purchases (if applicable): Even when cards process payments instantly, invoices may be issued as records for larger or B2B purchases
• For down payments or progress payments: Issued at each project milestone when partial payments are required

For subscription billing or recurring invoices: SaaS vendors and subscription-based companies generate invoices on a set schedule for ongoing services, such as software subscriptions or memberships

How POs and invoices work together in the AP process

Together, POs and invoices keep transactions orderly, transparent, and enforceable. A purchase order starts the transaction, and an invoice finalizes it by confirming what was delivered and how much is owed. Used together, these documents help your business track order accuracy, prevent unauthorized spending, and streamline your accounts payable process.

These documents also support the broader procurement workflow. The process begins when a department requests a product or service. After approval, the procurement or purchasing team creates a PO.

Step 1: Issue the purchase order

A department submits a purchase request, and procurement or purchasing creates and approves a PO that specifies quantities, pricing, and terms. The approved PO is then sent to the vendor as formal authorization to buy. Accounts payable (AP) or finance may also review the PO to ensure budget alignment and proper coding.

Step 2: Fulfill the order

The vendor’s operations, warehouse, or service team prepares and delivers the goods or completes the service according to the PO. Their fulfillment or logistics team documents shipment and shares delivery confirmations as needed.

Step 3: Send the invoice

The vendor’s billing or accounting team generates an invoice referencing the PO and detailing what was delivered, including itemized charges and payment terms. Your AP team receives and processes the invoice.

Step 4: Review and pay the invoice

AP verifies the invoice using 3-way matching against the PO and receiving records, resolves discrepancies, and routes it for approval. Once approved, AP schedules and issues payment.

Sample procurement process flow

A restaurant needs to purchase 50 pounds of coffee beans at $10 per pound. It sends a purchase order to a supplier outlining the order details. The supplier, Joe’s Coffee, processes the PO and delivers 50 pounds of coffee beans by the agreed date.

After delivery, Joe’s Coffee sends an invoice for $500 with payment due in 30 days. The restaurant reviews the invoice and compares it to the original PO and receiving records. Since everything matches, AP processes the $500 payment.

Benefits of purchase orders and invoices

Using POs and invoices together creates a clear control framework that helps businesses manage spending, reconcile deliveries, and ensure accurate payments. These documents also improve communication between buyers and vendors by setting expectations at every stage of a transaction.

Benefits for buyers

• Budget control: POs give buyers visibility into committed spend before it occurs, helping enforce budgets and prevent excessive purchasing
• Improved forecasting: Tracking PO commitments helps finance teams anticipate cash needs
• Clear approval workflows: POs establish a consistent review and approval process for spending requests, reducing unauthorized purchases
• Audit readiness: Well-documented PO and invoice records support accurate accounting and simplify audits

Benefits for vendors

• Payment clarity: POs outline expectations, helping vendors fulfill orders accurately and invoice with confidence
• Fewer disputes: When order details and terms are clear, vendors experience fewer invoice disputes
• Faster payments: Clear documentation and matching processes speed up invoice review, improving vendor cash flow
• Better customer relationships: Predictable and timely payments strengthen supplier relationships and reduce friction

Common challenges and solutions

Even with POs and invoices in place, teams can still run into process issues. Manual effort, inconsistent communication, and a lack of standardization often slow down procurement and accounts payable workflows.

Manual processing issues

• Time-consuming data entry: Without automation, teams manually type PO and invoice details into accounting systems
• Matching errors: Human error during invoice matching can delay approvals
• Limited visibility: When documents move through email or paper, teams lose insight into order status

Best practices for implementation

• Standardize templates: Using a consistent PO and invoice format helps teams process documents quickly
• Clear approval workflows: Document who approves spending and in what order to reduce confusion
• Training: Ensure teams understand how POs flow through procurement and AP, including how to validate documents and reconcile discrepancies

Match invoices to POs in seconds, not hours, with Ramp

Matching invoices to POs is a necessary but time-consuming process. Verifying each invoice manually can take hours, leading to delays and potential errors. With Ramp, businesses can automate invoice matching, ensuring that payments align with approved POs in seconds, not hours.

Ramp simplifies PO and invoice matching with:

• AI-powered invoice processing: Extracts key details from invoices and automatically identifies matching POs, reducing manual data entry
• Automated 3-way matching: Compares the PO, invoice, and receipt to verify accuracy before payment approval
• Customizable approval workflows: Ensures invoices are reviewed and matched to POs before payments are processed, preventing overpayments and fraud

By integrating intelligent automation into the AP process, Ramp reduces inefficiencies, allowing teams to focus on financial strategy instead of chasing down mismatched invoices.

Start matching invoices in seconds, not hours, with Ramp's invoice management software. Or, explore our free, interactive demo to see how it works without waiting.