Finding it difficult to differentiate between a purchase invoice and a sales invoice? Invoicing is indeed a time-consuming and complex process, and one of the tasks of maintaining best invoice practices is to separate purchase invoices and sales invoices. Unfortunately, this is where almost every new beginner makes mistakes.
Did you know? 61% of the time, invoicing mistakes are the main culprit for late payments.
And mixing up purchase invoices and sales invoices can cost you much more than late payments. In addition, it can mess up the entire demand-supply chain of your business. Thus, to keep you aware of the difference, let's compare purchase invoices vs sales invoices. After reading this blog, you will be able to define, separate, and use the invoices for the best of your business. So, let's begin with the definitions.
Key Takeaways
- 01Understand the fundamental definitions of purchase and sales invoices
- 02Learn the key differences between purchase and sales invoices
- 03Discover how purchase invoices help track business expenses and cash outflow
- 04Understand how sales invoices track revenue and accounts receivable
- 05Master the proper workflow for both invoice types to avoid costly mistakes
What is a Purchase Invoice?
A purchase invoice is a document produced by the purchaser to confirm the purchase order. It is generated after the purchase order is delivered. It verifies all the goods and services purchased by the business and records the sum of money to be paid to the supplier of the goods and services. The invoice date for a purchase invoice is the delivery date of the purchase order, and the due date is the date until the purchaser is expecting to make the total payment.
What is a Sales Invoice?
A sales invoice is a document for billing a customer for the goods or services provided. It is generated by the supplier of the goods or services. It lists down all the items sold with respective quantities and rates in accordance with the sales order. It is issued when a supplier wants to request payment from the customer. Hence, it highlights how much money the customer owes.
Every sales invoice include some fundamental elements, which are:
- Invoice date
- Invoice number
- Supplier branding (business name, logo, contact information)
- Customer details
- Itemized lists of goods sold and services provided
- Applicable sales tax and discounts
- Payment terms and conditions
- Seller signature
Alright! After knowing the basic definitions of both legally binding documents, it's time to point out the fundamental differences in both types of invoices.
What is the Difference Between a Purchase Invoice and a Sales Invoice?
If you are a new business owner, the difference between a purchase invoice and a sales invoice may be a thin line. However, it is very common to be confused between the new beginners and especially for one without accounting experience. Hence, let's differentiate both of them in a table for clear understanding.
Purchase Invoice vs Sales Invoice: Key Differences
| Aspect | Purchase Invoice | Sales Invoice |
|---|---|---|
| Direction | A supplier receives one | A supplier sends one |
| Issuer | Issued by the customer | Issued by the vendor |
| Accounting Entry | Mentions account payable | Mentions account receivable |
| Purpose | Confirms the purchase order | Confirms the completion of the order |
| Financial Tracking | Used to track company expenses | Used to track company revenue |
| Cash Flow | Tracks inventory cash outflow | Tracks inventory cash inflow |
How Purchase Invoice and Sales Invoice Works?
Now that we know the difference clearly let's know-how purchase invoices and sales invoices work. Since the purchase invoice is generated before the sales one in the accounting process, we will start with the purchase invoice.
Purchase Invoice
When the supplier fulfills a purchase order, the customer generates the purchase invoice to ensure the delivery of the goods or services is according to the payment agreements such as quantity, quality, and time of delivery in purchase orders and quotations. To create a purchase order, you need to mention the contact information of both the parties (seller and the buyer), the list of goods or services rendered, the total price of purchased items, the total cost, accounts payable, the due date, and the late fees.
A purchase invoice is mostly created for the internal documentation of the goods and services purchased. Having said that, customers do send the purchase invoices to the sellers to make the transactions as transparent as possible. This brings both parties on the same page, and both can cross-check the records and be accurate with the payments.
Sending purchase invoices to sellers helps both parties maintain accurate records and stay aligned on payment expectations.
When the seller receives a purchase invoice, they tally it with the purchase order of the relevant trade. Besides making the invoice accurate, it helps the seller keep records of every business and know when to expect to get paid by the customer. Once the seller is certain about the purchase invoice, he/she issues the sales invoice to the customer, which brings us to the next part.
Sales Invoice
After the customer receives the sales invoice from the supplier of goods or services, the customer forwards the invoice to the invoice processing department to match it with the purchase requisitions and sales orders before the approval. The final amount on it may differ from the amount on the purchase invoice of the same purchase order due to the variations in the applicable tax, price of the goods purchased, and rates of the services availed.
A sales invoice includes seller terms such as the preferred payment methods, due date, and breakdown of the accounts receivable. This helps the customer with the payment instructions and to pay the invoice to encourage early payments. If the sale invoice is created and sent via InvoiceOwl—the invoicing app, the seller has the option to add the payment button. All that a customer needs to do is just click the pay now button. Furthermore, it also works as a document for calculating the tax. By recording all the sales, a company can easily track the business done in the year and pay accurate tax effortlessly.
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Start Creating NowFrequently Asked Questions
Sales is the term used for the products/services sold by a business. It generates the revenue of a business. It is the activity of selling commodities to the customers.
Purchases are used for the products/services bought by a business to keep the business in function. It adds to the business expenses when companies purchase goods or services. It is the activity of buying commodities from a supplier.
For example, the paper sold is the sales of the paper company, and the raw material brought to manufacture paper is called the purchase of the paper company.
An invoice can be both a purchase invoice and a sales invoice if the invoice is generated by a neutral third party to acknowledge the transaction.
No, sales invoices and purchase invoices are not the same. Both the invoices serve different purposes. However, a purchase invoice helps the supplier to issue the sales invoice and vice-versa.
Making a professional invoice can take a lot of your time if done manually. Thus, automate the whole process by using one of the most popular accounting software—InvoiceOwl. Unlike most accounting software, it lets you create unlimited unique professional invoices with the help of ready-made templates. These invoice templates are highly customizable and offer the 'pay now' button as well.
Conclusion
Getting confused between purchase invoices and sales invoices is more common than you think. Since not everyone is from an accounting background, it is quite understandable. But, now, after reading this blog, we hope you know how to distinguish between two and use them for the best practices in your business.
In this blog, we discussed the basic definition of both types of invoices, learned the difference between them, and how they work for the best of the business. If you want to create the best invoices (purchase or sales) for your business, use InvoiceOwl's online free invoice generator, It helps you create professional invoices and get you paid quickly.
