Invoices detail who owes what, to whom, and for which goods or services. However, an invoice can represent either a company’s obligation to pay vendors and suppliers, or money the company is owed by its customers.
The term purchase invoice helps to clarify what type of invoice is being referred to, keeping a company on top of its payables. In this guide, we’ll explore what purchase invoices are, the information they include, and the key role they play in a company’s financial operations.
What is a purchase invoice?
A purchase invoice is a document that customers receive after making an order, serving as a request for payment from the seller. It provides detailed information about the purchase, including the items, unit prices, quantities, descriptions, payment terms and total order amount.
From the buyer’s perspective, the document is seen as a purchase invoice that provides a record of the transaction. In other words, when the customer receives a purchase invoice, they know exactly how much they owe the seller, and when their payment is due.
However, the same document is seen as a sales invoice from the seller’s perspective, indicating the amount they’re owed by customers for fulfilling an order.
Key elements of a purchase invoice
The exact structure and content of a purchase invoice can vary between sellers. Even though there is no standardized purchase invoice that all companies use, there are some key elements that are typically used, regardless of the seller:
- Unique Invoice Number: A unique string of numbers that corresponds to the specific order. It helps customers and sellers identify the order and simplify record-keeping.
- Invoice Date: The date the invoice was created.
- Purchase Order (PO) Number: Where applicable, the PO number that the invoice is associated with will be included.
- Vendor Information: Seller's contact details and potentially their logo.
- Customer Information: Buyer's contact details.
- Itemized List: A breakdown of the products or services purchased, including descriptions, quantities, and unit prices.
- Subtotal: The total cost of the items before taxes and shipping.
- Taxes: Any applicable sales tax.
- Shipping Costs: Where relevant, the cost of shipping the items.
- Total Amount Due: The final amount the buyer owes the seller.
- Payment Terms: Instructions on how and where to pay, and the due date.
Importance of purchase invoices
Purchase invoices play an essential role in financial operations, both for the seller and the buyer. Here’s a quick rundown of how important purchase invoices are:
- Record keeping: Purchase invoices help buyers and sellers track expenses and manage accounts payable.
- Financial reporting: They provide data that eventually flows through to the financial statements and analysis, providing visibility into the company’s spending or earning patterns.
- Audit trail: Invoices serve as evidence of transactions during audits. They also help companies complete a two-way or three-way sync against purchase orders and the goods receipt, ensuring they’re paying for exactly what they ordered and received.
- Legal protection: Invoices can be used as evidence in case of disputes. The document establishes the customer’s responsibility to pay, and the buyer’s expectation to receive payment of a certain amount by a given date.
- Payment tracking: They help ensure timely payments and manage cash flow, as payment terms are clearly laid out.
- Inventory management: Purchase invoices can be used to update inventory levels for both parties. It informs the buyer of the inventory moving into the business. For the seller, it shows the units that left the business’s possession, and when.
- Supplier relationship Support: These documents provide buyers with clarity about how much they owe, and by when. This helps buyers ensure on-time payments, showing vendors and suppliers that they’re reliable partners.
Difference between purchase order vs invoice
Purchase orders and purchase invoices might be easily confused with one another. These are two distinct documents that serve different purposes in a business’s procurement operations. However, there may be some overlapping information between the two, which can lead to some confusion.
To clarify, a purchase order is a document that a buyer creates and sends to a seller to formally request goods or services. It details the terms and conditions of the purchase, including quantities, prices, delivery terms, and more.
On the other hand, a purchase invoice is a document that the buyer receives from the seller as an official request for payment, typically after the requested goods or services have been delivered.
Even though both documents might contain similar information, like a description of goods and services, quantities, item prices, and more, the main differences between a purchase order and an invoice are the timing of the document’s delivery, who initiates it, and its purpose.
How to create a purchase invoice
Here are the steps a seller takes to create and send a purchase invoice to a customer:
Step 1: Gather the necessary information
First, the seller’s team needs to gather the relevant information to fill out the invoice, including the key components listed above, such as:
- The buyer’s name, address, and contact information
- The items or services purchased, and the unit prices
- The corresponding purchase order
- Sales tax, where applicable
- Delivery fees and terms
- Extra notes
Step 2: Access the invoice template
The team may already have an invoice template readily available with the company’s logo and information, which they can quickly update using the relevant information. If not, they’ll need to create the invoice from scratch.
Step 3: Fill out the details of the order
With the invoice template or blank document, the seller’s team can fill out the invoice, double-checking all details, quantities, and prices for accuracy.
At this point, they may need to generate a unique invoice number for the document
Step 4: Calculate the tax
Once all the order details have been filled out and the itemized list has been verified for accuracy, create a subtotal. On applicable orders, calculate and record the sales tax on the subtotal amount.
Step 5: Provide payment terms and other notes or fees
Beneath the subtotal and tax amount, list out any other fees associated with the order that the customer is being billed for, like a fee for delivery services. Add up the subtotal, sales tax, and additional fees to find the total invoice amount.
At the bottom of the invoice, include payment terms and details, like the payment due date and supported payment methods.
Step 6: Review and send
Before sending the invoice to the customer, the seller must review the document for accuracy, ensuring that customers are being billed correctly.
After reviewing the invoice, it can be sent to the customer via the agreed-upon channel, whether through a dedicated invoicing portal, by email, or by mail.
Integrating purchase invoices with your accounting system
Receiving a purchase invoice is one of the main aspects of the accounting cycle. As mentioned throughout, it represents the company’s obligation to pay for goods or services.
In other words, it provides accounting teams with official documentation that a transaction has occurred. By offering key pieces of information like the total order amount, purchase invoices help teams record accurate journal entries, which eventually flow through to financial statements.
Processing invoices may not be too much of a burden on a company’s accounts payable team when they’re receiving one or two a day. However, as the business grows, the volume of purchase invoices they need to process will likely increase.
Using an automated invoice processing system, like BILL, helps AP teams prevent bottlenecks and streamline workflows by reducing the amount of manual work required in this process.
Automate your accounts payable
BILL’s automated accounts payable solution helps simplify the processing of purchase invoices. Easily enter your bills into the platform (no manual entry required), tailor custom approvals workflows, and pay vendors with your preferred payment method, including ACH, credit card, check, and more.
Looking for a better way to create and manage sales invoices? Check out BILL’s invoicing and automated accounts receivable tools to get paid 2x faster with invoice automation.
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Frequently asked questions
What is a purchase invoice?
A purchase invoice is a document that a buyer receives from a supplier, requesting payment for goods or services that have been delivered.
What is a purchase invoice vs sales invoice?
A purchase invoice and a sales invoice are technically the same document, just viewed from two different perspectives. The seller sees the document as a sales invoice, representing what they’re owed for goods or services delivered. On the other hand, the customer views it as a purchase invoice, showing what they owe the vendor or supplier for their purchase.
Who prepares a purchase invoice?
Sellers prepare and send the purchase invoice to their customers.
What is a PO number?
A PO number is a purchase order number. It is the unique identifier listed on the purchase order that a seller creates after a customer submits an order. While the PO number may be included on the purchase invoice, it’s typically associated with the initial purchase order document.
