The short answer
A purchase order (PO) is a document the buyer sends to a supplier to order goods or services. It states what is being bought, how many, at what price, where it is delivered, and on what payment terms. Once the supplier accepts it, it becomes a commercial commitment on both sides.
An invoice is a document the supplier sends to the buyer after delivering the goods or performing the service. It states what was supplied, the amount due, the due date and how to pay. It is a request for money, and for the buyer it becomes a liability in accounts payable.
- The PO comes first and is issued by the buyer.
- The invoice comes later and is issued by the supplier.
- The PO commits the company to spend. The invoice asks the company to pay.
- The PO is an internal control document. The invoice is an accounting document that drives the payable and, eventually, the payment.
Purchase order vs invoice, side by side
| Aspect | Purchase order | Invoice |
|---|---|---|
| Issued by | The buyer | The supplier |
| Sent to | The supplier | The buyer (usually accounts payable) |
| Timing | Before delivery | After delivery or on a billing schedule |
| Purpose | Authorize and describe a purchase | Request payment for what was supplied |
| Accounting effect | Creates a commitment, no journal entry yet | Creates a liability in accounts payable |
| Key fields | PO number, items, quantities, agreed prices, delivery date, terms | Invoice number, PO reference, items billed, amount due, due date, remittance details |
| Who relies on it | Requester, approvers, receiving, budget owner | Accounts payable, controller, auditors |
| What it prevents | Unapproved spend and price surprises | Paying for something nobody can explain |
- Issued by
- Purchase orderThe buyerInvoiceThe supplier
- Sent to
- Purchase orderThe supplierInvoiceThe buyer (usually accounts payable)
- Timing
- Purchase orderBefore deliveryInvoiceAfter delivery or on a billing schedule
- Purpose
- Purchase orderAuthorize and describe a purchaseInvoiceRequest payment for what was supplied
- Accounting effect
- Purchase orderCreates a commitment, no journal entry yetInvoiceCreates a liability in accounts payable
- Key fields
- Purchase orderPO number, items, quantities, agreed prices, delivery date, termsInvoiceInvoice number, PO reference, items billed, amount due, due date, remittance details
- Who relies on it
- Purchase orderRequester, approvers, receiving, budget ownerInvoiceAccounts payable, controller, auditors
- What it prevents
- Purchase orderUnapproved spend and price surprisesInvoicePaying for something nobody can explain
What a purchase order actually does
A PO is where control happens. Before it exists, someone inside the company raised a need, a manager approved the amount against a budget, and a buyer chose a supplier. The PO records the outcome of those decisions in a form the supplier can act on.
A well-formed PO carries more than a list of items:
- A unique PO number that the supplier must quote on the invoice.
- The line items with quantity, unit of measure and unit price as agreed, not as hoped.
- Delivery address, requested delivery date and any shipping terms.
- Payment terms such as net 30 or net 45.
- The department, project or GL account the cost belongs to, so budgets update the moment the PO is issued.
The last point is the one finance teams tend to underrate. When a PO is approved, the money is not yet spent, but it is committed. A department with a $60,000 quarterly budget that has $22,000 of open POs really has $38,000 left, even if no invoice has arrived. Tracking commitments is what lets a budget owner say no before the money goes out, rather than explain it afterwards. Our budget control page shows how commitments and actuals sit next to each other.
What an invoice actually does
The invoice is the supplier's claim. Legally and practically, it is what the company pays from. It records what the supplier says it delivered and what it believes it is owed.
Accounts payable uses the invoice to record the liability, schedule the payment against the terms, and later reconcile the supplier statement. Auditors use it as primary evidence of an expense. The IRS expects a business to keep records that support every deduction, and the invoice, together with proof of payment, is usually that record.
What the invoice does not do on its own is prove that the purchase was authorized or that the goods arrived. A supplier can bill the wrong price, bill a full order that was only partly shipped, bill twice, or bill for something nobody ordered. None of that is visible from the invoice alone. It only shows up when the invoice is compared with something the company produced itself.
Where the two documents meet: matching in accounts payable
The PO and the invoice meet when accounts payable decides whether to approve the invoice for payment. The comparison can be done at two levels.
In two-way matching, the invoice is compared with the PO: same supplier, same items, prices within the agreed amount, quantities not above what was ordered. In three-way matching, a third document joins the check: the receiving record, which shows what actually arrived. Three-way matching is the stronger control for physical goods, because it catches the invoice that bills for items still on a truck somewhere. We walk through it line by line in three way match explained, with a worked example.
For a worked example, suppose the IT team orders 20 laptops at $1,150 each, so the PO totals $23,000. The supplier ships 18 and sends an invoice for 20 at $1,190 each, $23,800 in total.
- Against the PO alone, accounts payable sees a price of $1,190 against the agreed $1,150. That is a $40 per unit difference, $800 on the order.
- Against the receiving record, accounts payable sees that only 18 laptops arrived. Paying for 20 would mean paying $2,380 for two machines not yet in the building.
- The correct payable today is 18 units at the PO price of $1,150: $20,700. The price difference goes back to the supplier or to the buyer who agreed it, and the last two units are paid when they arrive.
Without a PO, there is nothing to compare the price with. Without a receipt, there is nothing to compare the quantity with. The invoice looks perfectly ordinary in both cases.
What goes wrong when a company runs on invoices alone
Many companies under a few hundred employees buy most things without POs. Someone orders, the invoice arrives in a shared mailbox, and finance forwards it to whoever seems responsible and asks if it is okay to pay. That works until volume grows. The typical problems are familiar to any controller:
- Spend is visible only after the fact. The first time finance hears about a purchase is when the bill arrives, so budgets are reports on the past rather than limits.
- Approval by email is weak evidence. A reply saying "fine" on a forwarded PDF is hard to find later and easy to dispute.
- Price drift goes unnoticed. Without an agreed price on file, a small increase on a recurring order just becomes the new price.
- Duplicate and phantom invoices get paid. An invoice resent with a new number, or a bill from a supplier nobody engaged, has nothing to be checked against.
- Month-end close slows down. Accruals for goods received but not yet invoiced are guesswork when there is no PO and no receipt to accrue from.
The reverse problem also exists: a PO process so heavy that people route around it. The answer is usually thresholds, so that small, low-risk purchases skip the PO or go through a card program, and everything above a set amount follows the full path. See purchase approval workflow for how to set those thresholds by amount and department.
When a purchase order is worth it, and when it is not
Not every purchase needs a PO. A practical rule for a mid-size company looks like this:
| Purchase type | PO recommended | Why |
|---|---|---|
| Goods and equipment above your threshold (often $1,000 to $5,000) | Yes | Price, quantity and receipt all need to be checked |
| Recurring supplies from a preferred supplier | Yes, often a blanket PO | Locks the agreed price, releases draw against it |
| Services with a defined scope and price | Yes | Scope and amount are agreed before work starts |
| Subscriptions and utilities | Usually no | Contract or recurring approval replaces the PO |
| Small incidental purchases under the threshold | No | Card program or expense report is cheaper to run |
- Goods and equipment above your threshold (often $1,000 to $5,000)
- PO recommendedYesWhyPrice, quantity and receipt all need to be checked
- Recurring supplies from a preferred supplier
- PO recommendedYes, often a blanket POWhyLocks the agreed price, releases draw against it
- Services with a defined scope and price
- PO recommendedYesWhyScope and amount are agreed before work starts
- Subscriptions and utilities
- PO recommendedUsually noWhyContract or recurring approval replaces the PO
- Small incidental purchases under the threshold
- PO recommendedNoWhyCard program or expense report is cheaper to run
The threshold itself is a finance decision. Set it too low and approvers drown in $80 requests. Set it too high and the purchases that matter most skip control. Many teams start at $2,500 and adjust after a quarter of data.
A quick checklist for finance teams
- Every PO has a unique number, and suppliers are told to quote it on every invoice.
- Invoices without a valid PO number go back to the supplier or to a named owner, not into a general queue.
- Prices on the PO are the agreed prices, and increases are approved before the invoice, not after.
- Receipts are recorded when goods arrive, including partial deliveries.
- Invoices are matched before approval for payment, with written tolerance rules for small differences.
- Open POs count against the budget as commitments, so budget owners see what is really left.