A purchase order just like any accounting term is important to a business owner be it small or large. It can sometimes be confused with an invoice but they are not the same even though they may have some similarities. It really can be a daunting task sitting to assimilate these supposedly big business terms. Do not fret in any way. We would simplify these terms and make them so easy for you to digest. You do not have to make some mistakes when computing your financial records.

A purchase order is a document issued by the buyer of a particular good or in need of a service to a seller. Basic information is contained therein which we would highlight shortly. In the event that the buyer has an established relationship with the seller, we can have what we call a standing purchase order.

What this implies is that at certain period of time, goods or services will be sent to the buyer repeatedly without the buyer raising new purchase order every time. Depending on the nature of the organization, a typical purchase order is designed with unique specifications and the following details are found therein:

  • The name and address of the buyer
  • The name and address of the seller
  • The purchase order number
  • The descriptions of the items to be purchased
  • The Quantities
  • The price per unit
  • The delivery point if different from the address
  • Instruction order/details
  • Signature of the Purchasing Manager

A purchase order can be raised when a low volume of stock is noticed in the warehouse. The purchase order is useful to the buyer and the seller as it is used to keep track of the financial transaction. The purchase order can be used to monitor when next you should place an order, check with the actual goods supplied by the buyer if it is in accordance with those indicated in the purchase order you issued. You should always remember that only the buyer initiates a purchase order and it is a legal document upon receipt by the seller.

Now let’s consider what an Invoice stands for. An invoice as used in both accounting and business world is a source document which is important for the seller to keep and have a well-documented financial record. The acceptance of a quote by the buyer having consented to the terms and conditions as contained in the quote prompts the seller to raise an invoice which in turns means that the buyer can then part with the purchasing power and make the necessary transfer of funds.

You can learn more about the payment obligations at gov.uk.

An invoice is usually very detailed and contains vital information. The seller can raise the invoice either during the supply of goods or rendering of the service or at the end of the business transaction depending on the existing agreement but usually the buyer makes payment if the goods have been delivered or when the service requested has been rendered. The following important details are found on an invoice:

  • The name and address of the seller.
  • The name and address of the buyer.
  • Date.
  • The quantity of goods.
  • The description of goods.
  • Price of each unit on the list, the computation of each unit gives the total cost of all the items.
  • The invoice number.
  • Section for the signatures of both parties, that is both the seller and the buyer.
  • The amount charged for Value Added Tax, VAT.

To cap it up, an invoice denotes that a service has been rendered or goods supplied to the buyer and the seller is making a request for payment. There’s plenty good online software tools that help you keep track of your invoices and handle all of the requirements and obligations for you. Quikflw is one of the most intuitive tools out there. It can create professional purchase orders, invoices, deliver notes, quotations and much more in just a few seconds. Tools like this are always super handy and we encourage you to check them out!