Purchase order vs invoice vs receipt

Purchase orders, invoices, and goods receipt notes are three distinct yet interconnected purchasing documents that play an integral role in the procure-to-pay process. They facilitate the three-way matching process in the accounts payable phase to confirm the accuracy of the invoice before a payment is processed.

Purchase orders: POs are legally binding documents created and shared by the buyer with the seller. Purchase orders help authorize a purchase and establish the buyer’s commitment to procure specific goods or services from the seller at agreed-upon prices prior to delivery. These act as a buyer’s promise to pay for the goods and services that have been ordered.

Goods Receipt Note or Goods/Service Entry Sheet: These are internal documents that are managed by the buyer’s receiving team, which confirms that goods have been delivered and assessed for quality and quantity. GRNs can also be used to verify that services have been performed within the stipulated timeframe. It is created after the goods or services have been delivered, before receipt of an invoice from the seller.

Invoices: Invoices are formal documents submitted by the supplier to the buyer’s finance team for payment processing. Invoices are typically issued based on the purchase order (PO invoice) or agreed-upon terms (Non-PO invoice) before payment is made.

When used together by the accounts payable team, the PO, GRN, and invoice facilitate three-way matching. It helps verify that what was initially ordered in the PO was delivered accurately, as mentioned in the GRN, and tallies with the items being billed for payment, ensuring accuracy and preventing unauthorized payments.