Invoices often move through numerous stages throughout the accounts payable department before they are finally approved. Understanding the difference between a PO and a non-PO invoice is very important, especially for businesses looking to automate the accounts payable process.
Most vendor invoices can be divided into two categories: PO and non-PO invoices. To better understand the differences between the two, it’s important to understand how the PO and non-PO purchasing processes differ.
First, here’s a brief definition of both PO and non-PO invoices.
A PO invoice is one that has a purchase order attached to it. Essentially, these invoices are generated after the approval of a purchase order. PO invoices contain details about the goods or services procured, and a matching purchase order number.
When PO invoices are received by the AP department, they are matched against the corresponding purchase order. This ensures that there are no inconsistencies between the original purchase order and the PO invoice. PO invoices are usually pre approved.
Common examples of PO invoices include:
As the name suggests, a non-PO invoice is one that doesn’t have a corresponding purchase order. Such invoices are also known as expense invoices, and usually indicate any indirect purchases made by a business. Owing to the nature of indirect procurement, non-PO invoices are generally not pre approved.
Non-PO invoices are also used to make payments to suppliers when a particular invoice is within the company’s spend limit. Common examples of non-PO invoices are:
|PO Invoices||Non-PO Invoices|
|– PO invoices have an attached purchase order||– Non-PO invoices do not have an attached purchase order|
|– Mainly used for direct procurement||– Commonly used for indirect procurement|
|– Faster approvals and processing||– Invoice approval is often slower|
|– Greater transparency and accuracy||– Less transparent than PO invoices|
Successful businesses operate under robust business plans. Decision-makers and business leaders know what they need to purchase in order to generate profits and make appropriate budgets for procuring such goods and services.
Based on the requirements, an employee in the procurement department submits a purchase requisition depending on the quotes they receive from different vendors. Once approved, a purchase order is issued to the vendor.
The purchase order is an official document, indicating the business’ commitment to pay the vendor for specified goods or services. Upon receiving the PO, the vendor confirms whether the order can be fulfilled or not, and then begins preparing it for shipment.
The PO number is mentioned on the packing list or receipt, so the business knows about goods received and outstanding orders. Once the goods are shipped, the vendor then provides an invoice using the same PO number, which is the PO invoice.
The PO invoice contains almost the same details as the purchase order itself, including the amount and the goods required. Since it’s pre-approved, no further approvals are required, and the invoice can be processed quickly. Naturally, this improves vendor relationships. The only requirement in most cases is that the PO invoice details should match those on the purchase order.
Non-PO invoices are often generated for smaller purchases, including regular expenditure, reimbursements for employee expenses, or legally contracted services.
Non-PO invoices are usually generated for goods or supplies purchased under a specified dollar limit. These smaller amounts simply do not justify the amount of effort involved in the standard PO process.
In many cases, licensing fees, permits, refunds, and even federal taxes are categorized as non-PO expenses. Legally contracted services such as building leases or legal services are also handled with non-PO invoicing.
The contract expenses are matched with the original contract instead of the PO. This is one of the reasons why approval for non-PO invoices often takes longer.
Moreover, since non-PO invoices are not pre-approved, they undergo an approval process. Manual approvals are often lengthy, as AP executives have to tally invoice amounts, run up the internal approval hierarchy, and conduct several approval steps one by one.
Automating invoice approvals through a cloud-based AP automation solution like SoftCo can save businesses a significant amount of time and money. It also reduces potential for error by a significant margin, removing the need for manual data entry, printing or scanning.
Invoices can be approved on the go by approvers via email or through the app, and all PO invoices are 3-way matched for maximum transparency and accuracy. Status reports are available that provide greater visibility into active invoices and those awaiting approvals, making it easier for executives to take action.