What Are Purchase Orders and How Are They Different from Invoices?
By James LaPrade | December 31, 2018 | Web TrafficFor many businesses, to go about their day to day operations they need to be able to buy certain replacement parts and products from outside vendors. Some larger companies have difficulty buying and keeping smaller items on hand for every different department, and when some small things are lacking, an entire department may fail to operate. It may be something as small as register tape, copier ink, or toilet paper, but without it, everything stops. In these cases, a purchase order is needed to assure the vendor they’ll get paid their price, and the main office is made aware of the purchase as well. At BMS Direct, we can do invoice processing in our sleep. So here are some tips on other reasons why nearly all companies should consider using purchase orders.
The Purchase Order Has Price, Quantity, and Part Number
The best reason of all to use purchase orders is to exactly define what it is you’re ordering, how many you want, and the agreed upon price. That way when you receive your order you aren’t surprised to get only one, when you wanted a dozen. Or, the price is double what was agreed upon on the phone.
On the purchase order everything is laid out and there is a spot for quantity, description, part number and price. There may also be terms of payment, name and address of the buyer, and other pertinent information.
There Are Copies for Several Departments
Most purchase orders are made with several different copies, each with a different colored paper. This way there is a copy for the seller, one for the buyer, and still another for the home office. Depending on how many departments need a copy, it’s possible to have everyone get one.
The purchasing department may need one to ensure that they are keeping the right supplies on hand, purchased in large quantities, so that smaller quantities aren’t bought at higher prices by individual departments. This kind of inventory control is important in order to keep track of costs, eliminate duplicated purchases, and track company theft.
The accounting department may want a copy to stop duplicate charges. They’ll take every PO, or purchase order, and match it up with a payment made from their invoices. If there are discrepancies, they can be looked into. Sometimes it’s only a mistake, but some vendors are constantly double billing and overcharging larger companies that don’t reconcile all of their purchases with paperwork.
The Main Difference Between Invoices and Purchase Orders
These two documents are easily confused and often are. When a company wants to authorize a purchase, they issue a purchase order and a copy Is sent to the vendor to fulfill. At the end of a month all of the purchase orders are added onto one page and then a bill is sent from the vendor to the company asking for payment, that is an invoice. An invoice can ask for payment on one or dozens of purchase orders and will usually list them in numerical order for easy viewing.
So, the purchaser issues the purchase order and the vendor receives it. On the other hand, the vendor issues the invoice and the purchaser receives that. The first confirms and describes the order while the second requests payment for the order or orders.
Stopping Employee Theft Helps Too
If the purchase orders issued by a company are all individually numbered, then any missing numbers will be suspect. That way, no employees would be able to order non-approved items and sneak the item out without there being a paper trail. Employee theft is a major problem in many industries and by keeping track of every purchase the main office can limit the amount of theft.
As you can see, the purchase order and invoice have their place in the business world. They’re a solid solution to ordering, receiving, and paying for products in businesses everywhere. They’re efficient and effective at what they’re designed to do.
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