Understanding Purchase Orders vs. Invoices

Meow Technologies, Inc.

Meow Technologies, Inc.

For companies making business-to-business (B2B) transactions, purchase orders and invoices are vital documents that formalize agreements between buyers and sellers. However, many entrepreneurs just starting out fail to understand the exact differences between the two. Though they share some basic similarities and contain overlapping information, purchase orders and invoices serve distinct purposes at different points in the procurement process.

This article will clarify the key differences between purchase orders and invoices, explain when each document is used, and discuss why understanding both is critical for smooth business operations and relationships.

What is a Purchase Order?

A purchase order (PO) is a commercial document issued by a buyer to a seller, indicating the type, quantities and agreed prices for products or services. It also specifies terms and conditions for delivery and payment. Sending a PO to a supplier constitutes a legal offer to buy products or services under the stated conditions. A PO acts as the formal approval for a purchase expenditure. Companies use purchase orders to record and track open commitments against a budget, as well as for inventory management. They also serve as written confirmation of an order. Once approved, a PO becomes a legally binding contract upon formal acceptance by the seller. The seller’s acceptance should be official, in writing and unambiguous. At that point, legally, the seller must fulfill the order as outlined in the PO, and the buyer must adhere to the payment terms.

Key Functions & Benefits of Purchase Orders

  • POs formalize the purchasing process, clearly laying out expectations, requirements, terms and conditions for both parties. This helps prevent costly misunderstandings down the road.
  • POs ensure adequate budget before tying up funds with order obligations. They enable finance teams to track outgoing commitments.
  • PO provide legal protections in case of non-delivery or disagreement over final terms. The mutually agreed PO contract can serve as the definitive reference document.
  • Standardized, numbered PO documents also simplify the accounts payable process. Invoice numbers can be matched to PO numbers for simpler auditing, timely payment and expense analysis.

What is an Invoice?

An invoice is a bill sent by a seller to a buyer. It identifies both parties, and lists and requests payment for goods provided or services rendered. The invoice gives specifics about the transaction including quantities, product descriptions, agreed prices, charges, credits, payment terms and relevant dates. A valid sales invoice documents that a financial transaction for goods or services took place between a buyer and seller. It represents a formal request for payment as per the conditions agreed in the initial order or contract. In most business contexts, a PO acts as the preliminary request and contract, which the invoice then fulfills.

Key Functions & Benefits of Invoices

  • Invoices formally document sales activity that has occurred, providing proof of transaction details. This creates an auditable paper trail for accounting, compliance reporting and record keeping.
  • Invoices initiate billing payments from clients, generating business revenue. This steady cash flow is the lifeblood for any business operation. Moving the payment process along faster improves financial performance.
  • Invoices help companies keep accurate tabs on accounts receivable balances – outstanding payments owed by clients. This is key for cash flow management decisions.
  • Proper invoicing supports tax compliance requirements for transaction documentation, reporting and filing.

Differences Between Purchase Orders and Invoices

Now we can summarize some key differences between the two documents:

  • Purpose: POs authorize procurement spending before it happens while invoices request payments for completed transactions
  • Timing: POs come before ordering goods/services; Invoices come after delivery
  • Direction: POs go from buyer to seller; Invoices go from seller to buyer
  • Legally Binding Status: Official POs become binding contracts upon acceptance; Invoices represent non-binding payment requests
  • Budget Impact: POs hold/commit funds for spending approval; Invoices collect payments against expenses already incurred

Similarities Between Purchase Orders and Invoices

While focused on different objectives, POs and Invoices also share quite a few similarities that link the procurement workflow:

  • Reference the Same Transaction: Both documents provide details referencing the initial product/service order
  • Track Legal Parties: POs and Invoices establish identifying information and relevant contacts for buyers/sellers
  • Outline Agreed Terms: The documents contain mutually accepted order details including price, quantity etc.
  • Link for Accounting: Shared PO numbers connect the documents for streamlined payment processing and bookkeeping

With these baseline details in common, the terms outlined flow directly from PO to invoice. The invoice then modifies only payment and billing information to request settlement.

Why Businesses Need Both Purchase Orders and Invoices

Maintaining up-to-date, accurate purchase orders and invoices isn’t just about good financial hygiene. It’s essential for core business functions and optimizing growth potential. On the accounts payable side, POs give you greater visibility and control over procurement spending. This allows you to optimize where budgets go, and ensure every dollar is working hard toward company strategy. Accounts receivable invoicing powers the crucial collections process that ultimately generates your operating revenue. Quick, efficient turnarounds on outstanding invoice payments translates directly to healthy cash positions. Used together, PO and invoicing approaches make sure you’re managing both money going out and money coming in – the very heart of cash flow for any venture.

Streamlining with Software

Typically, as small businesses scale into midsize companies, paper processing of POs and Invoices creates bottlenecks. Approvals get delayed, critical documents get misplaced, payments slow down. But for most common problems around purchase orders and invoicing, software can drive efficient, data-driven solutions. Cloud-based systems with automated workflows can track every PO and invoice in real time. Approval steps happen at the click of a button with full documentation. Invoice delivery and reminders ensure you always know your accounts receivable aging metrics. Business owners pressed for time will appreciate that solutions like these handle all the heavy lifting: even producing custom PO and invoice templates so you look polished and professional. For those without specialized finance staff, automation provides consistency, structure and compliance. The right tools turn invoicing and procurement from a constant battle into a seamless process. Instead of wondering if that urgent supplier invoice paid, you can focus forward on next-level strategies for boosting sales and expanding offerings. Software gives you back the mental bandwidth to handle important big picture business priorities.

Bringing It All Together

At its foundation, business comes down to trading: services and material goods in exchange for agreed compensation. Purchase orders and sales invoices make the exchange transparent, formal and accountable at every step. Understanding when each applies, where they diverge, and how they work as critical complements gives companies an edge. Transactions become more seamless when grounded in clearly defined expectations, roles and documentary trails. Rather than ambiguities leading to profit and time leaks, or hurried payments causing accounting issues, PO and invoicing best practices rein it all back in.


Meow Technologies is a financial technology company, not a bank or FDIC-depository insured institution. Likewise, Meow Technologies is not an investment adviser and none of the information presented herein should be relied upon as financial advice or a recommendation to make any financial decision nor should it be considered to be tax or legal advice. The information is the opinion of Meow Technologies for educational purposes and may not be suitable for all companies. Products, like the one described herein, are offered through Meow Technologies and are not advisory services which are only offered through Meow Advisory, LLC.** The FDICs deposit insurance coverage only protects against the failure of an FDIC-insured bank.**

Get started with Meow in under 10 minutes

*Disclaimer: Meow Advisory LLC is a registered investment adviser. Registration as an investment adviser does not imply any level of skill or training.
For accounts opened through Atomic Brokerage LLC: Meow Advisory LLC has an engagement with Atomic Brokerage LLC (“Atomic Brokerage”), a registered broker-dealer and member of FINRA and SIPC , to bring you the opportunity to open a brokerage account. Brokerage services for customers of Meow Advisory LLC are provided by Atomic Brokerage. For more details about Atomic Brokerage, please see the Form CRS, General Disclosures, and the Privacy Policy. Check the background of Atomic Brokerage on FINRA’s BrokerCheck.
For subadvisory services for accounts opened through Atomic Invest LLC: Meow Advisory LLC has an engagement with Atomic Invest, LLC (“Atomic Invest”), an SEC-registered investment adviser, to bring you the opportunity to open an investment advisory account. Investment advisory services are provided by Atomic Invest. Companies which are engaged by Atomic Invest receive compensation of 0% to 0.85% annualized, payable monthly, based upon assets under management for each referred client who establishes an account with Atomic Invest (i.e., exact payment will differ). Atomic Invest also shares a percentage of compensation received from margin interest and free cash interest earned by customers with Meow Advisory LLC. Meow Advisory LLC is not a client of Atomic Invest, but our engagement with Atomic invest gives us an incentive to refer you to Atomic Invest instead of another investment adviser. This conflict of interest affects our ability to provide you with unbiased, objective information about the services of Atomic Invest. This could mean that the services of another investment adviser with whom we are not engaged could be more appropriate for you than Atomic invest. Advisory services through Atomic Invest are designed to assist clients in achieving a favorable outcome in their investment portfolio. They are not intended to provide tax advice or financial planning with respect to every aspect of a client’s financial situation and do not include investments that clients may hold outside of Atomic Invest. For more details about Atomic Invest, please see the Form CRS, Form ADV Part 2A, the Privacy Policy, and other disclosures. Brokerage services for Atomic Invest are provided by Pershing Advisor Solutions LLC (“PAS”), a registered broker-dealer and member of FINRA and SIPC.
Neither Atomic Invest nor Atomic Brokerage, nor any of their affiliates, is a bank. Investments in securities are Not FDIC insured, Not Bank Guaranteed, and May Lose Value. Investing involves risk, including the possible loss of principal. Before investing, consider your investment objectives and the fees and expenses charged by Atomic Brokerage and/or Atomic Invest.
See the Legal Section within the Meow website for additional agreements.

U.K. Gilt pricing quoted net of fees. ~5% U.K. Gilt yield is sourced from Investing.com December 2023 6-month United Kingdom 6-Month Bond Yield. ~5% Treasury Bill yield is sourced from treasurydirect.gov December 2023 12-week U.S. Treasury Bill auction.

**Disclaimer: Meow Technologies is a financial technology company, not a depository, bank or credit union, and your account at Meow is not, itself, an FDIC-insured product.

Meow currently partners with three banking providers. Banking services are provided by Third Coast Bank SSB; Member FDIC, Grasshopper Bank, N.A; Member FDIC, and FirstBank, a Tennessee corporation; Member FDIC.

By opening a Maximum Checking account through Meow and if you choose to receive banking services provided by Grasshopper Bank, N.A, you deposit your funds into a deposit account at Grasshopper Bank, N.A. which sweeps those funds into deposit accounts across a network of Federal Deposit Insurance Corporation (“FDIC”)-insured banks, for up to the current standard maximum deposit insurance amount (“SMDIA”) of $250,000 per eligible depositor, per destination institution, for each ownership capacity or category, subject to applicable terms and conditions, including Grasshopper's ICS Deposit Placement Agreement. Grasshopper Bank, N.A. uses a third-party vendor and agent to help administer this sweep process. Visit https://www.intrafi.com/network-banks/ for a list of the banks and savings associations with which we/Grasshopper, N.A. have a business relationship for the placement of deposits at destination institutions, and into which your deposits may be placed (subject to applicable terms with you, and any opt-outs by Grasshopper, N.A. or you). The current maximum deposit insurance amount for your funds is up to $125 million in FDIC insurance through the sweep network of Grasshopper Bank, N.A, subject to change at any time with notice from Meow and/or pursuant to applicable law. Terms and restrictions apply. Subject to applicable rate sheet. Interest rate on checking products quoted in Annual Percentage Yield (APY). Interest rates and yields are effective as per the date on the applicable rate sheet. See applicable terms and restrictions and refer to the applicable rate sheets for additional information.

By opening a Maximum Checking account through Meow and if you choose to receive banking services provided by Third Coast Bank SSB, you deposit your funds into a deposit account at Third Coast Bank SSB. If you also hold funds in a sweep program with Third Coast Bank SSB, Third Coast Bank SSB sweeps those funds into deposit accounts across a network of FDIC-insured banks, for up to the current SMDIA of $250,000 per eligible depositor, per receiving bank, for each ownership capacity or category, including any other balances you may hold at that receiving bank directly or indirectly through other intermediaries, including broker-dealers. Third Coast Bank SSB uses a third-party vendor and agent to help administer this sweep process. Visit Third Coast Bank SSB for a list of the banks and savings associations with which we/Third Coast Bank SSB have a business relationship for the placement of deposits at receiving banks, and into which your deposits may be placed (subject to applicable terms with you, and any opt-outs by Third Coast Bank or you). The current maximum deposit insurance amount for your funds is up to $50 Million in FDIC insurance through the sweep network of Third Coast Bank, subject to change at any time with notice from Meow and/or pursuant to applicable law. Terms and restrictions apply. Subject to applicable rate sheet. Interest rate on checking products quoted in Annual Percentage Yield (APY). Interest rates and yields are effective as per the date on the applicable rate sheet. See applicable terms and conditions and refer to the applicable rate sheet for additional information.

By opening a Maximum Checking account through Meow and if you choose to receive banking services provided by FirstBank, a Tennessee corporation, you deposit your funds into a deposit account at FirstBank, which sweeps those funds into deposit accounts across a network of FDIC-insured banks, for up to the current SMDIA of $250,000 per eligible depositor, per destination institution, for each ownership capacity or category, subject to applicable terms and conditions, including FirstBank's ICS Deposit Placement Agreement. FirstBank uses a third-party vendor and agent to help administer this sweep process. Visit IntraFi for a list of the banks and savings associations with which FirstBank has a business relationship for the placement of deposits at destination institutions, and into which your deposits may be placed (subject to applicable terms with you, and any opt-outs by FirstBank or you). The current maximum deposit insurance amount for your funds is up to $125 million in FDIC insurance through the sweep network of FirstBank, subject to change at any time with notice from Meow and/or pursuant to applicable law. Terms and restrictions apply. Subject to applicable rate sheet. Interest rate on checking products quoted in Annual Percentage Yield (APY). Interest rates and yields are effective as per the date on the applicable rate sheet. See applicable terms and restrictions and refer to the applicable rate sheet for additional information.

***FDIC insurance coverage is only available to protect you against the failure of an FDIC-insured bank that holds your deposits (and does not protect you against the failure of Meow or other third party). Your account with Meow and all services provided to you are subject to the Meow Terms of Service (“Account Agreements”) and other applicable terms and no other representations or warranties, express or implied, are provided to you except as expressly set forth in those written Account Agreements. If you have any questions regarding your account, please contact team@meow.com.

FirstBank Funds Availability Notice

FirstBanks general policy is to allow you to withdraw funds deposited in your account on the first business day after the day we receive your deposit. Funds from electronic deposits will be available on the day we receive the deposit. In some cases, we may delay your ability to withdraw funds beyond the first business day. Then, the funds will generally be available by the SECOND business day after the day of deposit.