The Ultimate Guide on Purchase Invoices [2024]

A purchase invoice keeps track of all sales generated by a business. It especially comes in handy when a company is generating a steady increase in revenue.

When the cash flow is consistent and inventories are emptied quickly, the business is on a positive trajectory. The higher the sales, the more crucial it is to record all transactions carried out in the business.

If you’re still wondering how a purchase invoice aids in tying everything together and providing a viable reference to boost ROI further, read on and find out!

What is a Purchase Invoice?

A purchase invoice is a document issued by a business whenever a buyer purchases their goods or services. This document is also important for collecting payments for utility bills, rent, and other services carried out by the business for their customer.

Purchase invoices are typically created in conjunction with purchase orders. They provide a summary of all the goods or services purchased by the customer and indicate the amount the buyer has to pay.

Why is a Purchase Invoice Important?

The importance of a purchase invoice is not just limited to representing successful transactions. In the section below, you can find out why every seller or business must always issue a purchase invoice!

#1. Establishing Legal Rights

A purchase invoice effectively demonstrates a business’s legitimacy and integrity. It signifies that a seller is operating their business with the utmost compliance with legal guidelines and obligations.

Invoices are legally binding, which can be useful to ensure customers pay on time. Without an invoice, it would be difficult to guarantee that buyers would fulfill their financial obligations to the seller or vendor.

If a buyer fails to send payment or an issue arises during the transaction, a purchase invoice serves as a valid contract that protects the business and regulates any potential losses.

#2. Distinguishing Legitimate Businesses from Scammers

Scammers use any means possible to fool unsuspecting victims. They can imitate legitimately operating businesses to convince customers to send them money.

When a business issues purchase invoices for all their transactions, it acts as evidence that their services and products are authentic. It instantly sets them apart from fraudsters.

#3. Receiving Timely Payments

All invoices should indicate a specified date and time. The date and time show the deadline for a customer to fulfill their payment in full.

For example, a virtual assistant agency caters to multiple clients and has organized each client’s payment schedule and invoicing period.

A purchase invoice makes it easier to monitor when a client has made their payment. At the same time, it serves as a guide for the agency to check if any payments are overdue and need follow-up.

#4. Better Inventory and Tax Management

Purchase invoices are also crucial for regulating taxes and cash flow. For example, keeping a record of all issued invoices makes it easier to compute the exact amount of taxes that the business is obligated to pay.

In the same manner, invoices are key factors in managing inventories. It segregates fast-selling products from those that are not. More importantly, a purchase invoice ensures that there is a balance between the acquisition and sale of goods.

#5. Healthy Buyer-Seller Relationship

Building trust is pivotal in any buyer-seller relationship. One way to establish trust between both parties is by consistently issuing proof of payment.

In short, an invoice that records all transactions denotes how both sellers and buyers abide by the prices of goods and payment terms they agreed upon.

#6. Eliminates Tracking Issues

Purchasing invoices contain important buyer and seller information, such as their contact information and address. If any concerns arise during the transaction, these details help pinpoint the source.

For instance, if a seller finds that they have not yet received payment from the buyer, they can double-check the payment information they provided. Or they can also confirm with the buyer if they sent the money using the payment channel displayed in the invoice.

Is a Purchase Invoice the Same as a Purchase Order?

In short, a purchase invoice isn't the same as a purchase order.

If a purchase invoice is sent by the seller, then a purchase order is sent by the buyer. Purchase orders specify the type of goods or services that they want to purchase from the seller. It also includes the exact number of items that they wish to buy, the description of these goods, the payment terms, and the date of the purchase.

A purchase order is typically sent first since it shows the final list of products and services to be purchased. The seller then verifies with the buyer all the details in the purchase order before responding with the correct invoice.

Below is a list of the key similarities that are found in purchase orders and purchase invoices:

And here is a list of information that differentiates purchase invoices from purchase orders:

What Goes on a Purchase Invoice?

The following are the most essential items to include in your purchase invoice:

#1. Buyer and Seller Information

Your invoice must contain your name, business address, and contact information. It must also include your client’s name, address, and contact details.

The buyer and seller information shows that you are transacting with a real individual or entity, in the same manner that it reinforces your legitimacy as a business.

#2. Invoice Date and Number

The invoice date and number enable faster tracking of payments and sales.

The invoice number is important for managing your inventory and following up on payments. There are two most common ways to generate or write an invoice number.

Sequential numbering assigns a number to each invoice by following a numerical order. It is recommended that you include the name of your client in the invoice number, especially if you are following this format: JOHNSMITH_001.

Chronological numbering includes the date when the invoice was created, along with the invoice number. For example: YYYY-MM-DD—INVOICE SEQUENCE NUMBER or 20230102.

#3. List of Products Sold

Itemize the products purchased by your customer in your invoice. Here, you need to specify the description of each item or product, the number of products that your customer wishes to purchase, and the corresponding price for each item.

Finally, you must provide the subtotal of all the procured items.

#4. Payment Terms

Payment terms describe the payment methods you accept to receive payment from your customer. Try to discuss your preferred payment channels with your customer to prevent any transaction issues or misunderstandings.

Some of the most common and preferred payment channels include

• Bank transfer
• Cash
• Credit cards
• Checks
• Online payment (PayPal, Apple Pay, Stripe)

As the seller, you will be the one to set the deadline or due date for when your buyer must fulfill their payments. You can also negotiate and discuss payment terms that work best between you and your customer.

#5. Additional Notes

Additional notes may be in the form of a thank you note or even instructions for the product. The latter is common in consumable or perishable goods like food (how and when it is best to consume it) or fragile items that need extra care in handling.

You can also use this part of the invoice to note any adjustments in the pricing or the payment or leave a simple ‘thank you’ note.

How to Make a Purchase Invoice Effortlessly

Did you know that invoice template generators come in handy when it comes to managing all customer orders and payments? Why use software such as Word or Excel to create invoices when a generator can do it all much faster and more efficiently?

Invoice template generators have all the necessary details prepared for you. Creating a purchase invoice using a template takes less than five minutes!

All you have to do is follow these easy steps:

1. Visit our free invoice generator
2. Choose a template for your purchase invoice.
3. Fill in all the required fields with the necessary information.

Once you’re done, you can download your desired document instantly and forward it to your clients via email in a digital form, such as a PDF.

Final Thoughts

All in all, think of a purchase invoice as your ticket to proving yourself as a trusted business name and establishing a solid protection against scams and potential disputes.

Although making purchase invoices on your own can be difficult, you can also use free templates to generate invoices.

And while the term ‘keeping receipts’ has taken on a whole new meaning in this day and age, it still retains the same meaning when you are selling any type of service or goods. Keep your invoices (or receipts) as they will prove useful to you when the time comes.

Key Takeaways

• Every business or seller must have a purchase invoice, which serves as proof of a successful transaction.
• A purchase invoice is important in earning customer trust, attaining legal rights and protection, and improving your business’s long-term growth.
• A purchase order is different from a purchase invoice as it’s issued by a buyer in procuring goods.
• A solid purchase invoice typically contains the buyer and seller’s information, the type and quantity of products to be purchased and the total amount to be paid.
• Creating a purchase invoice is relatively hard if you do it on your own, but it can be better with the help of an invoice template generator.