What Is a PO and Non-PO Invoice?
Learn the fundamental differences in how companies manage invoices, distinguishing between planned expenditures and other types of payment requests.
An invoice is a fundamental accounting document used in business to formally request payment for goods or services provided. It serves as a record of a transaction, detailing the items, quantities, and agreed-upon prices. Businesses generate invoices for sales and receive them for purchases from vendors. This document helps manage financial transactions, track sales, payments, and outstanding balances.
Understanding Purchase Orders
A Purchase Order (PO) is a formal document issued by a buyer to a seller. It outlines the specific types, quantities, and agreed prices for products or services the buyer intends to acquire. A PO is sent to the supplier before goods or services are delivered, formalizing the buyer’s intent to purchase. Once accepted, it becomes a legally binding agreement.
A PO acts as a control mechanism in procurement, helping businesses manage expenditures and align purchases with budgetary plans. It also provides a clear audit trail, enhancing financial control and accountability.
PO Invoices
A PO invoice is a request for payment directly linked to a previously issued purchase order, including the corresponding PO number. The presence of a PO streamlines invoice processing, as the purchase has already been pre-approved. Accounts payable typically performs a “matching” process to verify accuracy. This often involves 2-way matching (comparing the invoice to the purchase order for quantity and price) or 3-way matching (adding a goods receipt or service confirmation). This matching process ensures what was ordered was received and billed correctly, helping prevent overpayments or fraudulent charges.
Non-PO Invoices
Non-PO invoices are requests for payment not preceded by a formal purchase order. These invoices are generally for goods or services acquired outside the standard procurement process. Common examples include utility bills, rent payments, subscriptions, legal services, and employee expense reimbursements.
The approval process for non-PO invoices differs significantly from PO invoices, as there is no pre-existing order to match against. Approval typically involves direct authorization from the department or budget holder who incurred the expense. This often requires a thorough review to ensure legitimacy and accuracy, as these invoices lack the initial pre-approval and detailed documentation provided by a purchase order.
Key Differences
The primary distinction between PO and non-PO invoices lies in the presence or absence of a formal purchase order. PO invoices are the result of a structured procurement process with pre-approval, while non-PO invoices arise from purchases made without such a preceding document. Purchase orders provide enhanced control and visibility over spending, allowing for better budget management and tracking. Non-PO invoices, conversely, rely more on post-facto approval, which can make financial oversight more challenging.
The approval workflow also varies, with PO invoices often undergoing a matching process (e.g., 2-way or 3-way matching), whereas non-PO invoices require direct departmental or budget holder approval. POs are generally used for planned, recurring, or higher-value purchases, while non-POs cover ad-hoc, smaller, or service-based expenses.