Purchase Order vs Invoice: How They Differ and Work Together

A purchase order is the buyer's commitment to purchase goods or services at agreed terms. An invoice is the seller's request for payment after delivery. The purchase order authorizes the transaction; the invoice closes it by requesting payment. Together, they form the documentation chain for three-way matching, audit compliance, and spend control.

The difference between purchase order and invoice goes beyond definitions. This guide covers where each document sits in the procurement lifecycle, how three-way matching connects them, what happens when they do not match, when purchase orders are not needed, and how both compare against receipts and sales orders.

What Is a Purchase Order and What Is an Invoice

A purchase order (PO) is a formal document issued by the buyer to the seller, committing to purchase specific goods or services at agreed quantities, prices, and terms. It functions as the buyer's official authorization to proceed with a transaction. Once the seller accepts the purchase order, it becomes a legally binding contract between both parties, locking in the agreed specifications, pricing, and delivery schedule.

An invoice is a document issued by the seller to the buyer after goods have been delivered or services have been rendered. It serves as a formal request for payment, detailing the amounts owed based on what was actually supplied. The invoice references the terms originally agreed upon in the purchase order, including item descriptions, quantities, unit prices, and payment deadlines.

The distinction in who creates each document is critical for understanding the purchase order and invoice difference:

Purchase orders are created by the buyer's procurement or purchasing team. They originate on the buyer side as an internal control mechanism before any goods change hands.
Invoices are created by the seller's accounts receivable or billing team. They originate on the seller side after fulfillment, triggering the payment process on the buyer's end.

Can an invoice be used as a purchase order? No. This is a common point of confusion, but the two documents serve fundamentally different functions in the procurement cycle. A purchase order authorizes a future purchase. It says, "We agree to buy these items at these terms." An invoice requests payment for a completed transaction. It says, "You received these items; here is what you owe." Substituting one for the other removes a critical control point: without a PO, there is no pre-approved benchmark to validate what the seller eventually charges.

The table below summarizes the core differences in a PO vs invoice comparison:

	Purchase Order	Invoice
Issued By	Buyer (procurement/purchasing team)	Seller (accounts receivable/billing team)
Issued To	Seller	Buyer
When Created	Before delivery of goods or services	After delivery of goods or services
Purpose	Authorizes the purchase and defines terms	Requests payment for fulfilled goods or services
Legal Status	Becomes a binding contract once accepted by the seller	A demand for payment; not binding until matched and approved by the buyer
Key Fields	PO number, item descriptions, quantities, unit prices, delivery date, payment terms	Invoice number, PO reference, item descriptions, quantities, unit prices, tax, total amount due, payment terms

The Procurement Lifecycle: Where Each Document Fits

Every purchase a company makes follows a predictable path from initial need to final payment. This path is known as the procure-to-pay cycle (P2P). Understanding where the purchase order and invoice sit within this cycle clarifies their distinct roles and why both exist.

The P2P cycle breaks into five stages:

1. Purchase requisition. The process begins inside your organization, not with a supplier. A department or employee identifies a need and submits a purchase requisition to procurement or management for approval. This is a purely internal document. The supplier never sees it. A warehouse manager might requisition 500 units of packaging material, or a marketing team might request a new software subscription. The requisition triggers an internal review: Is the spend budgeted? Is it necessary? Who needs to approve it?

2. Purchase order. Once the requisition is approved, procurement formalizes it into a purchase order. The PO specifies exactly what is being ordered, in what quantities, at what agreed price, and with what delivery terms. This document is sent to the selected supplier and serves as a binding commitment to buy. It authorizes the spend before any goods ship or services begin.

3. Goods receipt. After the supplier fulfills the order, the warehouse or receiving team inspects and confirms delivery. For physical goods, this means verifying quantities and condition against the PO. For services, it means confirming that the work was performed as agreed. The goods receipt creates a record that fulfillment actually occurred.

4. Invoice. The supplier then sends an invoice requesting payment for the delivered goods or completed services. A properly issued invoice references the PO number, tying it back to the original authorization. This is the supplier's formal demand for payment based on what was delivered.

5. Payment. AP receives the invoice, verifies it against supporting documents, and releases payment according to the agreed terms. This final step closes the cycle for that transaction.

Notice the sequence: the purchase order comes before the invoice, not after. This distinction matters because it reflects the underlying logic of procurement controls. The PO authorizes spending before it happens. The invoice requests payment after fulfillment. Reversing that order, paying first and documenting later, removes the financial controls that prevent unauthorized or inaccurate spending.

The purchase requisition, though often overlooked in discussions comparing purchase orders and invoices, is a critical predecessor. Without it, there is no formal record of who requested the spend or whether it was approved internally before a commitment went to the supplier. Organizations that skip the requisition step frequently discover unauthorized purchases surfacing as invoices with no matching PO.

The connection between purchase orders, invoices, and goods receipts is formalized through a process called three-way matching, which ties all three documents together to verify that what was ordered, what was received, and what was billed all align.

Three-Way Matching: How Purchase Orders, Invoices, and Goods Receipts Connect

Three-way matching is the verification process AP teams use before approving an invoice for payment. It compares three documents side by side: the purchase order (what was ordered), the goods receipt (what was actually received), and the invoice (what the supplier is billing for). All three must align on quantities, unit prices, and terms before payment proceeds.

This process is the standard control for goods-based purchases and serves as the primary safeguard against overpayment, duplicate billing, and fraud.

A Worked Example

A company issues PO #4501 for 500 units of industrial filters at $12.00 per unit, totaling $6,000.00.

The warehouse receives a shipment and logs a goods receipt for 480 units. Twenty units are on backorder.

The supplier sends Invoice #INV-7823 for 480 units at $12.00 per unit, totaling $5,760.00.

Here is how the three-way match plays out:

Document	Quantity	Unit Price	Total
PO #4501 (authorized)	500 units	$12.00	$6,000.00
Goods receipt (received)	480 units	-	-
Invoice #INV-7823 (billed)	480 units	$12.00	$5,760.00

The invoice matches the goods receipt: 480 units at $12.00 each, totaling $5,760.00. Both fall within the scope the PO authorized. The match succeeds, and the invoice moves to payment approval. The remaining 20 units will trigger a separate invoice and match cycle when they arrive.

Variations on the Matching Process

Not every organization uses three-way matching for every transaction. Two-way matching compares only the purchase order to the invoice, skipping the goods receipt entirely. This simpler approach is common for service contracts, subscriptions, and low-value transactions where physical receipt verification adds overhead without proportional benefit. Four-way matching goes a step further by adding a quality inspection report as a fourth document, confirming that goods meet specifications before payment is released. For a deeper look at how two-way, three-way, and four-way matching work in practice, each approach fits different transaction profiles and risk tolerances.

Three-way matching remains the default for most goods-based procurement because it catches the most common discrepancies: shipments that arrive short, unit prices that differ from what was agreed, or invoices that bill for quantities never received.

Not every match resolves this cleanly.

When Purchase Orders and Invoices Do Not Match: Exception Handling

In practice, a perfect three-way match on the first attempt is the exception rather than the rule. Mismatches between purchase orders and invoices are routine, and every AP team needs defined exception handling processes to resolve them without bottlenecking the payment cycle.

Tolerance Thresholds

Most organizations set tolerance thresholds to avoid flagging every minor variance for manual review. A tolerance threshold is a percentage or dollar amount by which an invoice can differ from the PO and still receive automatic approval. For example, a 2% tolerance on a $5,000 PO means any invoice up to $5,100 passes through without human intervention.

These thresholds are typically tiered by transaction size:

Large POs ($50,000+): Tighter tolerances of 1-2%, because even a small percentage represents a significant dollar amount.
Mid-range POs ($5,000-$50,000): Standard tolerances of 2-5%.
Small purchases (under $5,000): Wider tolerances of 5-10%, since the cost of manual review can exceed the variance itself.

Any invoice that exceeds the applicable threshold gets flagged and routed to a reviewer for investigation. The reviewer then determines whether the variance is justified (a legitimate price adjustment, for instance) or whether it requires correction from the supplier.

Partial Shipments and Multiple Invoices

Suppliers frequently ship orders in batches rather than all at once, and each shipment typically generates its own invoice. A single PO may produce multiple invoices spread across several weeks or months.

Consider a PO for 1,000 units at $10 per unit ($10,000 total). The supplier ships and invoices in three batches:

Invoice 1: 400 units - $4,000
Invoice 2: 350 units - $3,500
Invoice 3: 250 units - $2,500

Each invoice is matched individually against the PO, and AP must track the cumulative invoiced amount against the PO total. After Invoice 2 is processed, the remaining PO balance is $2,500. If a fourth invoice arrives unexpectedly for $1,000, it should be flagged immediately because the PO has already been fully consumed by the three legitimate invoices. Without cumulative tracking, overpayments slip through undetected.

PO Amendments and Change Orders

Business needs shift after a PO is issued. Specifications change, quantities increase or decrease, delivery timelines move, or new line items get added. When this happens, a change order formally amends the original PO. The amended version becomes the new baseline for all subsequent matching.

This distinction matters because invoices must always be matched against the latest PO revision, not the original. If a PO was originally issued for 500 units and later amended to 600 units via a change order, an invoice for 600 units is correct, not an overage. AP teams that match against outdated PO versions create false exceptions that waste time and damage supplier relationships.

For example, if PO #4501 was originally issued for 500 units at $12.00 and later amended to 600 units at $11.50 via Change Order #1, the new authorized total is $6,900.00. An invoice for 600 units at $11.50 matches correctly against Revision 1 of the PO, not the original. Every change order should carry a revision number and date so that both the buyer and supplier reference the same document version.

Price Discrepancies

Price mismatches between the PO and the invoice arise from several scenarios:

Supplier surcharges: Raw material cost increases or fuel surcharges applied after the PO was issued.
Pricing errors: The supplier invoices at a different rate than what was agreed upon.
Contract price updates: A master pricing agreement was renegotiated, but the PO still reflects the old rate.
Volume discount adjustments: The invoiced price reflects a discount tier that differs from what the PO assumed.

Each of these requires investigation. Resolution typically follows one of two paths: the supplier issues a corrective invoice at the PO price, or the buying organization issues a PO amendment to reflect the updated pricing. Accepting price discrepancies without resolution sets a precedent that erodes procurement controls over time.

The Cost of Unresolved Exceptions

Every exception, whether a tolerance breach, a partial shipment mismatch, or a pricing dispute, creates a delay in the payment cycle. Invoices sit in exception queues instead of moving toward payment, which can trigger late payment penalties, damage supplier relationships, and reduce the organization's ability to capture early payment discounts. This makes improving invoice processing accuracy a critical goal for any AP team looking to reduce exception rates and accelerate cycle times. When exceptions require escalation beyond the AP team, having a well-defined approval process with clear escalation paths for each exception type prevents bottlenecks from compounding.

Not all invoices go through this matching process. Some arrive without any purchase order at all.

Non-PO Invoices: When a Purchase Order Is Not Needed

Not every invoice that lands in the AP inbox will have a purchase order behind it. Non-PO invoices are invoices that are processed and paid without a corresponding purchase order, and they are a normal part of accounts payable operations. Understanding which non-PO invoices are legitimate and which signal a control failure is critical for AP teams and financial controllers alike.

Common Legitimate Non-PO Invoice Categories

Several categories of spending routinely bypass the PO process because requiring a purchase order for each transaction would add administrative cost without proportional control value. These include:

Recurring utility bills such as electricity, water, and telecom services
Subscription services including software licenses and SaaS tools
Rent and lease payments for office space, equipment, or vehicles
Professional services retainers for legal counsel, accounting firms, or consultants
Emergency or urgent purchases where operational need cannot wait for standard procurement approval
Low-value purchases below a defined dollar threshold, such as transactions under $500

These expenses share common traits: they are predictable, low-risk, and often governed by existing contracts or standing agreements. When is a purchase order not needed? In precisely these situations, where the cost of creating and managing a PO exceeds the control benefit it provides.

Maverick Spending: The Risk Behind Uncontrolled Non-PO Invoices

The distinction between a legitimate non-PO invoice and a problem invoice comes down to one question: did the purchase follow an approved process, or did it bypass procurement controls entirely?

Maverick spending, also called rogue spending, occurs when employees purchase goods or services outside approved supplier lists or without going through the procurement process. The financial impact is significant. According to research by The Hackett Group cited by Accountancy Age, organizations may lose up to 16% of negotiated savings when stakeholders purchase outside approved supplier lists, bypassing the purchase order process. That erosion of negotiated pricing directly affects the bottom line, and it compounds over time as more spend falls outside contracted terms.

Red Flags for Problematic Non-PO Invoices

AP teams should watch for these warning signs when processing non-PO invoices:

Unfamiliar supplier names that do not appear in the approved vendor master file
Invoice amounts that seem disproportionately high for the claimed spending category
Duplicate invoices from the same supplier for similar amounts within a short period
Invoices from suppliers not on the approved vendor list, particularly for categories where preferred suppliers exist

Any of these indicators warrants further investigation before payment is released.

Alternative Approval Workflows for Non-PO Invoices

Because there is no purchase order to match against, non-PO invoices require a different approval path than the standard three-way match. Common alternatives include department head approval based on budget authority, budget owner sign-off confirming the expense was anticipated and authorized, or retrospective PO creation where a purchase order is generated after the fact to document the commitment. The right approach depends on the invoice amount, spending category, and organizational risk tolerance. For organizations looking to formalize these processes, building an effective invoice approval workflow ensures that non-PO invoices receive appropriate scrutiny without creating bottlenecks.

Blanket Purchase Orders: A Middle Ground

For recurring purchases that fall into predictable patterns, blanket purchase orders offer a practical compromise between full PO control and no PO at all. A blanket PO covers an estimated total spend over a defined period, such as a quarter or a year. Individual invoices are then matched against the blanket PO as they arrive, and each payment draws down the authorized total until the limit is reached. This approach gives AP teams a document to match against for three-way matching purposes while eliminating the need to issue a separate purchase order for every delivery or service period. It works particularly well for office supplies from a single vendor, recurring maintenance services, and other categories where the supplier and general scope are known but exact quantities fluctuate.

When comparing non-PO invoice vs PO invoice processing, the core difference is the level of pre-authorization. PO-backed invoices carry built-in approval from the requisition stage. Non-PO invoices shift that approval burden to the payment stage, which demands stronger downstream controls.

The Audit Trail: How Purchase Orders and Invoices Support Compliance

Together, purchase orders and invoices form the backbone of the procurement audit trail. Each document captures a distinct stage of a transaction: the purchase order records what was authorized, the goods receipt confirms what was delivered, and the invoice records what was billed. This three-document chain provides independent verification at every step, creating a paper trail that auditors, regulators, and internal compliance teams rely on to confirm that money was spent as intended.

SOX Compliance and Internal Controls Over Financial Reporting

The Sarbanes-Oxley Act (SOX), which applies to US public companies, requires documented internal controls over financial reporting under Section 404. The purchase order-to-invoice matching process is one of the most scrutinized controls in any SOX audit because it sits directly between authorization and payment.

Auditors evaluating SOX compliance look for evidence that:

Invoices were matched to approved purchase orders before payment was released
Exceptions, such as price discrepancies or quantity mismatches, were documented and resolved through a formal process
Approval authorities were followed, meaning the person who authorized the PO had the spending authority to do so

When these controls break down or lack documentation, the result is a material weakness or significant deficiency finding, both of which trigger remediation requirements and increased audit scrutiny in subsequent periods.

Tax Audit Preparedness

Tax authorities may request supporting documentation for business expense deductions at any time, sometimes years after the original transaction. Having purchase orders paired with their corresponding invoices provides clear evidence of the business purpose behind each expense, the authorized amount, and the actual cost incurred.

Missing purchase orders or unmatched invoices create audit exposure. The IRS generally audits within a three-year lookback window, extending to six years if substantial understatement is suspected. If your organization cannot produce the documentation chain linking an expense to an authorized business need during that window, the deduction may be disallowed. The risk compounds as transaction volumes grow and personnel turnover makes institutional memory unreliable.

Fraud Prevention Through Document Pairing

Beyond regulatory requirements, the purchase order-to-invoice pairing functions as a direct fraud prevention mechanism. It closes several common fraud vectors:

Fictitious vendor invoices. Without a corresponding purchase order, a fraudulent invoice has no authorized transaction to attach to. The matching process flags it immediately.
Duplicate payments. Matching catches invoices that reference PO line items already paid against. When every payment is traced back to a specific PO line, paying the same obligation twice requires bypassing the control rather than slipping through unnoticed.
Unauthorized price increases. Invoice amounts are verified against the prices and terms agreed upon in the purchase order. A vendor billing above the contracted rate triggers an exception rather than being paid automatically.

Each of these controls adds processing steps to every invoice. The cost of matching, reviewing exceptions, and routing approvals is part of the true cost of processing an invoice, but the alternative, paying invoices without verification, exposes the organization to losses that far exceed the cost of the control itself.

Purchase Order vs Invoice vs Receipt vs Sales Order

Purchase orders and invoices are two of several documents that move through the procurement process, but they are not the only ones. Two other documents frequently confused with them are receipts and sales orders. Understanding all four clarifies the full document flow from order placement through payment.

A receipt, also called a goods receipt or delivery receipt, is a document confirming that goods have been physically received. In the procurement context, the buyer's receiving department creates this document at the point of delivery. It records what was actually delivered, including quantities and condition of the items. As covered in the three-way matching process, the goods receipt serves as the third document matched against the purchase order and invoice before payment is approved.

A sales order is a document created by the seller in response to a purchase order. It confirms the order and commits the seller to deliver the specified goods or services at the agreed terms. The sales order mirrors the PO from the seller's perspective. Where a purchase order represents the buyer's commitment to purchase, a sales order represents the seller's commitment to deliver.

The table below compares all four documents across their key attributes.

Document	Created By	Sent To	When Created	Primary Purpose	Role in Matching
Purchase Order	Buyer	Seller	Before delivery	Authorizes the purchase and specifies terms	Baseline document for matching
Invoice	Seller	Buyer	After delivery	Requests payment for goods or services delivered	Compared against PO and receipt
Receipt / Goods Receipt	Buyer (receiving dept.)	Internal	At delivery	Confirms goods were physically received	Verifies quantities and condition received
Sales Order	Seller	Internal	After receiving PO	Confirms order acceptance and delivery commitment	Seller's internal record, not typically part of buyer matching

Receipts are frequently confused with invoices because both appear after delivery, but they serve different parties: the receipt is the buyer's internal confirmation of what arrived, while the invoice is the seller's external request for payment. Similarly, purchase orders and sales orders are often conflated, but they represent opposite sides of the same commitment: the buyer's authorization to purchase versus the seller's commitment to deliver.

This purchase order vs invoice vs receipt vs sales order comparison highlights that each document serves a distinct role at a specific point in the procurement cycle. No single document replaces another, and skipping any one of them introduces risk into the ordering, receiving, or payment process.

Practical Takeaways for AP Teams

The core distinction is straightforward: a purchase order authorizes spending before goods or services are delivered, while an invoice requests payment after delivery. These two documents form the foundation of procurement controls, and every process improvement in accounts payable builds on keeping them aligned.

Here are concrete steps AP teams can apply immediately.

Define clear PO thresholds. Set a dollar amount below which purchases do not require a purchase order, and document that threshold in your procurement policy. Many organizations use a cutoff between $500 and $5,000 depending on industry and transaction volume. This reduces the administrative burden on low-value purchases while maintaining controls on significant spending. Review the threshold annually to ensure it still reflects your risk tolerance.

Implement three-way matching for goods-based purchases. Before approving payment, match the purchase order, goods receipt, and invoice on quantity, unit price, and line-item descriptions. Three-way matching is the most effective control against overpayment, duplicate invoices, and fraud. For service-based purchases where no goods receipt exists, a two-way match between the PO and invoice with manager sign-off serves as a workable alternative.

Set tolerance thresholds by transaction tier. Not every variance warrants manual review. Allow small discrepancies, typically 2 to 5 percent, to auto-approve so your team is not bottlenecked by rounding differences or minor shipping charges. Reserve manual exception handling for larger mismatches that signal pricing errors, unauthorized quantity changes, or potential overbilling. Tiered tolerances keep invoices moving without sacrificing oversight where it matters.

Create a separate approval workflow for non-PO invoices. Because non-PO invoices have no purchase order to match against, they need department-head or budget-owner approval before payment. Processing them through the same workflow as PO-backed invoices creates confusion and weakens controls. A dedicated path with its own approval chain, GL coding requirements, and documentation standards keeps non-PO spending visible and accountable.

Maintain the audit trail without gaps. Every invoice should link to its corresponding purchase order or, for non-PO invoices, to an alternative approval record that documents who authorized the expense and why. Gaps in the documentation chain create exposure during internal reviews and external audits alike. Consistent linking between purchase orders, receipts, and invoices also makes it far easier to investigate discrepancies months after the fact.

Understanding how purchase orders and invoices interact at each stage of the procurement cycle, from requisition through payment and reconciliation, helps AP teams reduce matching exceptions, maintain compliance, and process invoices with fewer delays. Keep this guide as a reference point whenever questions arise about which document governs which step, and revisit your thresholds and workflows as transaction volumes and business needs evolve.