What is an accounts payable

An Introduction to Accounts Payable: What It is and What It Does?

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When buying goods for your company, you won’t always pay for those goods in advance, but will often receive an invoice from the vendor. You need to keep these invoices in check if you want to avoid double payment, being late on paying your suppliers and so on.  That is what the accounts payable is for.

An accounts payable, or trade payable, is only present in businesses that use an accrual accounting system. This type of accounting system means recording income and expenses as they happen and not when the cash changes hands. For example, an accrual would be an invoice received for the goods this month, but is due for payment next month. This will present a clear picture of the company in review, but has the downside of not always giving an accurate portrayal of the cash flow.

An opposite of the accrual accounting is cash-based accounting, which is used by businesses that have regular and instant cash dealings.

What is an Accounts Payable?

Simply put, an accounts payable is nothing more but a ledger that shows the invoices you still owe money for. These are short-term liabilities, meaning you need to pay them within a shorter period of time, up to a year, compared to long-term liabilities such as employee payrolls. These do not belong in the accounts payable.

You can record purchase orders, contracts, invoices from suppliers and agreements with vendors under accounts payable. When recording accounts payable, you should use double-entry bookkeeping, which means having two entries for every transaction in order to balance your books. One entry will increase the account and is credited and the other will decrease it and is debited.

The AP is usually recorded in the general ledger, under “current liabilities” and is credited when the invoice is received and debited when the bill is paid to the vendor.

Here is what the accounts payable typically contains:

  • The name of the creditor
  • Invoice number
  • Date of invoice receipt
  • Account number
  • Type of expense
  • Invoice payment deadline
  • Invoice status (paid, pending or past deadline)

Why is an Accounts Payable Useful?

Bookkeeping without an accounts payable can be overwhelming, so the AP allows the company to better track its finances. Moreover, the AP will:

  1. Help the company maintain its business relationship with creditors, vendors and suppliers by paying its invoices on time
  2. Prevent possible financial fraud due to bad bookkeeping
  3. Avoid overpayment as you can see the exact amount due for every invoice you have pending at the moment
  4. Help improve the company’s credit score. A business paying its debts on time will always be in more favorable light than one that is constantly late with payments.

Conclusion

Most importantly, however,  an accounts payable will show you if your company is profitable or not. If you keep having low cash at hand, but your AP is high, that means you owe more than you earn.

Are you using an accounts payable or have another system or keeping track of what you owe to creditors? Let us know what you think about this system in the comments below the article and don’t forget to sign up and try Purchase Order Plus for free to better manage your purchase orders.

best ERP systems for 2018

Top 7 ERP Systems to Use in 2018 and Beyond

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Your company may have many resources at its disposal. While this is usually  a good thing , sometimes it can be hard to keep track and manage them all. This is why you need to use a good enterprise resource planning or ERP system.  The problem, however, is often finding one that fits your company best. To make this decision a bit easier, here are the best 7 ERP systems you can use in 2018.

1. NetSuite ERP

Oracle’s NetSuite ERP is used by more than 40,000 companies, ranging from SMEs to large corporations. It can be found in a variety of industries. This cloud-based ERP solution allows you to automate and streamline both front office AND back office processes, including purchase order management, invoicing, billing, inventory management and financial management, among others.

NetSuite is not only an ERP system, but also a business management suite with applications for customer relationship management (CRM), e-commerce and finance, in addition to ERP.

2. SAP Business One

Managing the information flow between different businesses, especially if they are different in scale and size, are often daunting, especially for small business. SAP Business One, however, handles this task quite well. With it, businesses can much easier manage their resources.

SAP Business One allows you to manage sales, purchases, procurement, CRM, finance, as well as business intelligence reporting and has tools that will let you handle wholesale distribution, retail, machinery or consumer product with more ease.

3. Microsoft Dynamics AX

Microsoft Dynamics AX  is an ERP system that works both on premise and on the cloud and features multi-language, multi-currency capabilities. Of course, the ERP is with Microsoft’s other business applications, which is a big plus, not to mention that it’s relatively easy to customize and has good support.

4. BatchMaster ERP

BachMaster ERP is primarily made for businesses in the manufacturing industry. In particular those in the pharma, chemical and beverage industries. It’s main promise is that it enables organizations to handle their sales, distribution, purchasing and other tasks much faster, while at the same time giving them a clear view of their data.

5. FinancialForce ERP

Sometimes an organization will want to move from CRM to and ERP solution. Unfortunately, this is often not an easy task and there can be a number of problems along the way. FinancialForce ERP enables mid-market companies do that by aligning sales, finance, human resources and other apps and organizes them to be more visible, perform faster and flexible.

6. Odoo

Odoo is a cloud-based ERP solution that offers sales & project management in one place for organizations of all sizes. The software not only has a myriad of e-commerce, point-of-sale (POS) and MRP applications and functions, but is also capable of integrating the organization’s sales channels with inventory management.

7. Brightpearl

Few ERP systems can boast the sheer range of business processes that Brightpearl can handle in just one platform. This includes inventory, customer data, purchase orders, reports, accounting and more. Brightpearl also includes tools for cash flow, inventory, customer purchase behaviour and more, in real time. Thanks to Brightpearl, multi-channel retailers can have a reliable ERP system that allows them to better manage their retail and increase their profits.

Conclusion

Finding a good ERP can help your business grow, handle a variety of tasks and maximize profits. These 7 ERP systems here are our choice for the best ones to keep an eye on in 2018. Which other ERP systems would you recommend? Let us know in the comments below and don’t forget to sign up and try Purchase Order Plus for free.

How to write a PO cancelation letter

How to Properly Write a PO Cancelation Letter and Politely Let the Customer Know You’re Unable to Complete Their Order

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Canceling a customer’s purchase order isn’t really the best-case scenario, but sometimes you just have to do it. You may have to cancel a PO due to your organization’s inability to complete it on time, not having the required goods, or a suspicion you have about the customer and their PO. Whatever the reason, you need to let the customer know by sending them a PO cancelation letter.

What Should a PO Cancelation Letter Look Like?

Whatever the reason for the cancelation, a PO cancelation letter is not something you should use to “give the customer what for”. Be polite. Apologize for the inconvenience. Even if you don’t consider the cancelation to be your fault. Clearly state the reason (or reasons) why you can’t fulfill the purchase order.

Don’t forget to list the items on the order you are canceling. Make sure to also remind the customer about any action they need to do and provide a contact to reach you on with questions.

A PO cancelation letter should contain:

  • Customer’s company information (name, address…)
  • Name of the person taking purchase orders
  • Your company’s information
  • Name of the person in your company canceling the order (if you are canceling the PO, it’s your name)
  • Order number for the items you are canceling
  • Order placement date
  • What items are you canceling
  • What items you are not canceling (if for instance, you are able to only partially complete the order)
  • Description of the items you are canceling (quantity, size, inventory number, etc)
  • When the cancelation will take effect
  • Why you are canceling the order
  • A request for confirmation of the cancelation by the customer (usually in writing, but email is often acceptable)
  • Contact information that the customer can reach you on with any questions (email, phone number)
  • Copies of purchase orders, invoices and receipts used for the order.

That’s a lot to consider, so to make it clearer, here is an example of how a PO cancelation letter should look like.

PO Cancelation Letter Example

COMPANY LEATHERHEAD

Name of your company

Company address

City, State, Zip Code

Company representative canceling the order

 

DATE OF PURCHASE ORDER CANCELATION

Name of customer’s company

Customer’s company address

City, State, Zip Code

Person responsible for taking orders

 

“Dear (insert name of the person responsible for taking purchase orders within the customer’s company):

I am writing to inform you that my company will have to cancel the purchase order NUMBER you placed on DATE for AMOUNT.

Unfortunately, due to time constraints, we are unable to complete your purchase order by the required date.

I apologize for any inconvenience. We are offering a REFUND within 7 working days, as per our agreement.

If you have any questions, please reach me at Name@email.com or phone number 000-123-4567.

Thank you for your understanding.

Kind regards,”

 

Your full name and signature

List of included documents (receipts, invoices, POs…)

Conclusion

Canceling a PO is not the end of the world. Sometimes, you just have to do it. If that’s the case, we hope this article can help you let your customer know.

Need help with  creating, approving or sending purchase orders? Try Purchase Order Plus for free.

Do you have any questions about PO cancelation letters and how to write them? Let us know in the comments below.

how to reject a customer's purchase order

How to Reject a Customer’s Purchase Order (Politely)

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As a business owner or a PO manager you will sometimes be unable to fulfill the customer’s wishes or to work with them for some other reason. Rejecting a customer is not easy and if you don’t do it right you risk alienating that customer from your business forever. This is why it’s important to know how to reject a customer’s purchase order.

Why Would You Reject a Customer’s Purchase Order?

There are basically two types of customers you can reject a PO from. The first one you don’t want to work with in the future for one reason or another. Perhaps your company already had some issues with this customer, such as late or slow payments, discrepancies in their previous purchase orders, bad credit and so on. Declining this customer’s purchase order is just a convenient way to cut any ties with them in a polite “thank you for your business, but kindly take it elsewhere” way.

In other scenarios, however, you might want to continue your dealings with the client, but can’t accept their PO. For instance, there may be nothing wrong with the customer per se, but your company doesn’t have the quantities of goods they are looking for or the shipping deadline is too narrow. In this case, instead of losing the client (probably to your competitors), you should sit with the client (or have a phone call), explain the situation and try and find a way to solve the problem in a way that benefits both sides.

What to Say to the Rejected Customer?

Sometimes, telling the whole truth is not a good idea. You want to avoid telling the client anything that can put your company in a bad light. Things like “we are having financial trouble” or “the IRS is currently investigating us” are not something the customer will be happy to hear. In fact, it will probably send them a signal to take their business (and money) elsewhere.

Still, you need a reason for declining a customer’s purchase order. This can be a simple “we apologize, but we can’t take any more clients at the moment” or “we’re sorry, but we can’t fulfill this PO in that deadline”. What you choose to tell the clients will depend on whether you want to work with them in the future or not.

The bottom line is that you don’t have to go into details. Just provide a general, but clear reason for declining.

Do You Want to Keep the Customer?

The issue may not be with the client. In fact, you might want to continue working with them, but for whatever reason you have to decline their PO. Instead of just shutting the door, try extending your hand to help solve the problem. For instance, if you’re not able to fulfill the purchase order in that quantity, let them know and ask if they can extend the deadline or allow you to send the order in parts.

If, on the other hand, you can’t find a way to fix the problem, there is still one thing you can do to help the customer. Tell them where they can complete their order. It’s not perfect and you’ll be sending the customer to your competition, but you’ll stay in their good graces. And, who knows, maybe the competitor will return the favor?

Conclusion

Rejection is just a part of life (and business). Sometimes you just have to do it. The important thing to remember when you reject a customer’s purchase order is to be clear and polite.

Want to make purchase order approval easier for your team? Try Purchase Order Plus

What are the pros and cons of purchase order financing

Pros and Cons of Purchase Order Financing

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We’ve been talking about PO financing for a while now here at Purchase Order Plus, about what it is, how to apply for one, where to get it and what kind of businesses are the most suitable for this type of funding. Throughout this article and this one, we established that purchase order financing can be a good option for many business owners when they are short of cash and need to fulfill a large PO.

But is purchase order financing always a good option? Let’s take a look at the pros and cons of purchase order financing to find out:

Pros of Purchase Order Financing

There are several advantages to using PO financing, but the biggest are the following four:

  1. Easy access to cash

When it comes to ease-of-access, you’ll likely find purchase order financing to be much more convenient than getting a regular bank loan. In fact, financial institutions who deal in PO financing, or “factors” will usually release funds within 24 hours.

  1. You pass on the collection risk and responsibility

With bank loans, the collection risk and responsibility fall to you and your company. This is not the case here though. Factors normally accept non-payment risks as a part of service. What this means is not only that you get this type of funding quickly (see the first advantage), but it also doesn’t come with as many collection risks in case something goes wrong.

  1. No loan installments

Try to take a loan at a bank and it will probably turn out twice as expensive than the amount you’ve loaned. For this, you have monthly loan installments to thank. PO financing doesn’t include monthly loan installments as it is not a loan in the classical term. Instead, you pay it back in full when the customer pays you for the goods.

  1. Cheaper than credit cards

Using your credit card to make bank payments seems convenient, but it can actually be more expensive than you realize. purchase order financing, on the other hand, is a cheaper alternative to this.

Cons of Purchase Order Financing

Did you like those pros of PO financing? Well, I’m afraid I’ve got some bad news. Not everything about them is so good. In fact, there are a few disadvantages here as well. Here are a few of the biggest:

  1. Factors charge an upfront fee

Traditional loan services let you repay your loan in several installments and models. This is probably their biggest advantage over “factors”, who demand an upfront payment from their clients. In other words, you have to make a payment even before you actually earn the money from the PO.

  1. The risk of alienating the customer

If you’re using PO financing, you run the risk of alienating the customer. Here’s why. You don’t actually directly communicate with them. Instead, when they’re ready to make a payment, they don’t pay your company, but the factoring firm. You can imagine how some customers can do a double take when they learn about this. To them, this means that your business is in financial trouble.

  1. You don’t get the full amount

While factors take a great deal of credit and collection risk, they compensate this by keeping a portion of the funds they will lend you until after your customer pays for the purchase order.

  1. It’s only a short-term solution

Purchase order financing is a bit like applying a patch to your clothes. You won’t have a whole in your trousers any more, but you haven’t really solved the long-term problem of needing a new pair. As such, PO financing should only be considered a short-term solution.

Do you have anything to add or ask about the pros and cons of purchase order financing? Let us know in the comments below the post and don’t forget to subscribe your email for our PO software, Purchase Order Plus to receive early updates.

Best practices for purchase orders

10 Best Practices for Purchase Orders and Requisitions

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To ensure the accuracy and control of your purchase orders and requisition, it’s always good to have certain best practices in place. Here are 10 best practices for purchase orders and requisition you would do well to follow in your company:

1. Create Purchase Order Copies

As a buyer you will need a copy of the PO, while another copy needs to go to the seller. In addition, every other department involved in the purchase should also be sent a copy of it. Of course, to avoid duplication (happens with paper POs), you can make digital copies available to everyone that needs them.

2. Use an ERP System

It is much easier to confirm and file POs using an Enterprise Resource Planning System (ERP), which will assign a number to your purchase orders.

3. PO Cancellation Process

Accept only authorized cancellations in writing or via email. Purchase Order cancellation is a serious thing and should be approached like that. Make sure to file a copy or a printout (in case of an email) of the cancellation along with the original PO.

4. Control PO and Requisition Costs by Budgeting at Department Level

A good purchase order software, like Purchase Order Plus, can tell you and your department managers whether the PO fits your budget both on company and departmental level. It does not mean giving up control of your budget. For instance, if the requested purchase is over the budget, the PO software will flag it and the department manager can reject it or approve it accordingly.

5. Maintain Transparency of Your Purchase Orders

Ensuring transparency of your purchase orders will go a long way to not only help you control your internal spending and costs, but to also comply to external audits. You should have easy access to every element of the purchase order, including the quantity of the purchase, availability, budget, as well as seller contracts, including service level agreements you’ve made.

6. Accept POs Only from Authorized Personnel and Sources

It is vital to accept and approve purchase orders only from authorized personnel and sources. Even if they work with the same seller you’ve been dealing with for a time, this will make sure to prevent duplicating orders and having redundant POs.

7. Properly Confirm and File Changes

It is not uncommon for a purchase order to change. These changes, however, should be properly made, confirmed and finally filed (a hard copy or email printout) along with the purchase order itself.

8. Ensure a Self-Service Procurement for Your Employees

Another good practice is to use a purchase order software that allows your staff members self-service procurement. This way, those not in the procurement can also submit PO templates with vendors (at least those pre-approved). In addition, self-service procurement also enables your departmental managers to approve lower value items themselves so you don’t have to do everything.

9. Keep PO Documentation

You might be inclined to get rid of the purchase order documentation as soon as you receive and approve the PO, especially if you are still using paper POs, but hold on. You should keep this documentation for a long time because of audits in order to verify their accuracy. Put someone in charge of making sure proper purchase order documentation is in place and filed correctly.

10. PO QA

Each purchase order should be properly entered into the system and filed. This is where a quality control (QC) person comes into to ensure all PO details are accurate, including price, item description, quantity, shipping details and so on.

Conclusion

By following these best practices for purchase orders and requisitions it gets much easier to keep control of the many PO aspects. There is very little room for error here, so each of these can help you get rid of the guesswork.

Do you have any questions about best practices for purchase orders or POs in general? Let us know in the comments below and make sure to subscribe your email to our Purchase Order Plus software and get important updates.

how to qualify for PO financing

Who can Use PO Financing and how do You Qualify?

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If you need a quick way to complete a particularly impatient customer’s purchase order, but don’t possess sufficient funds at the moment, purchase order financing, or just PO financing, can be the right choice for you.

Essentially, this is a loan you receive from a financial institution (a bank or specialized loan company) before delivering the goods to and invoicing your customers.

Who is PO Financing for?

Can anyone use PO financing ? As you’ll find out in this article all kinds of companies can use purchase order financing (or funding), including:

  • Distributors of goods
  • Resellers of those same goods
  • Wholesalers
  • Importers of finished products
  • Exporters of those same products

The list doesn’t end with just these, of course, and is much longer, so if you’re wondering, yes, your company is very likely a good candidate for this type of funding.

How Would One Qualify for PO Financing?

This leads us to another important questions. If your business is a good candidate for purchase order financing, how would you qualify for it exactly?

As long as you operate a reputable business and work with the like-minded suppliers and customers, you are on a good way to qualify. Of course, keep in mind that the exact qualifying terms will vary from one financing company to another so it is always a good idea to hear their terms before you decide whether to go with them or not.

For instance, one important requirement to qualify is your profit margin. Here, most banks look for a margin between 15% and 20%, but there are some that go for a minimum of 25%.

Another requirement is that you need to deal with customers and suppliers that have a solid credit record and are therefore creditworthy. This typically means working with customers and suppliers who haven’t filed for bankruptcy recently and are consistently paying on time. Of course, many loan providers will have their own, extra, requirement and will check the customer’s creditworthiness through a common credit bureau.

What Do You Need to Look for in a PO Financing Company?

This was about your company and your customers and vendors qualifying for purchase order financing, but what about the other way? How can you tell if you found a good PO financing company? There are several tell-tale signs that can tell you if you made the right choice or not.

You don’t want to deal with just anyone, so here are some things to consider and ask:

  1. What is their history with PO financing? How long have they’ve been doing it?
  2. How long have they been in the financing business, more importantly, PO financing business?
  3. Who were some of their previous clients? What is their opinion of the PO financing provider? Is it positive or negative?
  4. What products do they offer? Do they have trained personnel to handle purchase order funding?
  5. How do they receive payment from your customers and how (and when) will they pay the suppliers? Do they wait until the customer pays or do they pay the supplier upfront?
  6. What background (especially credit) checks do they perform on your customers and suppliers?
  7. Do they have direct communication with your customers and how? How do they communicate with suppliers?
  8. What are their own costs (including the breakdown of those costs)?

By answering these questions, you can be one big step closer to finding a good PO financing company and, of course, getting a purchase order funding that you need.

Conclusion

And that’s it. Now you know what types of companies can find value of PO financing, how to qualify for it and what to look for in a financial company that offers them. The rest is up to you.

Hope you found this article useful and if you have any questions or comments about the topic or just purchase orders in general, let us know in the comments below and if you’re looking for more cashflow control and better reporting, don’t forget to sign your email for our Xero mobile add-on software Purchase Order Plus.

how does purchase order financing work

Purchase Order Financing: What is it and how it Works?

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When a buyer issues a purchase order to a seller and the latter accepts it, this document becomes a legally-binding agreement between the two parties. The problem here is that, the final customer gets a long payment terms to pay for the product, which can sometimes stretch for months, while at the same time, the buyer needs to pay the supplier. This means that the buyer has to have a substantial fund already, otherwise the PO will disrupt their cashflow.

There is a solution to this problem, however, and it is called purchase order financing. In this article, I will explain what PO financing is and how it works. Hopefully, this will give you a good idea if this is the right thing for your business or not.

What is Purchase Order Financing?

Purchase order financing or purchase order funding is an advanced payment that a bank or other financing organization issues to the buyer to help them pay their supplier for the goods. In other words, this is funding a buyer receives before sending the goods to the end customer and before it invoices them.

This type of financing is dependent on your past history with the suppliers and customers and your credit record. This is why it’s more suitable for already established companies like business-to-business (B2B) or business-to-government (BTG) than, for example, startups.

Another thing of note to remember about PO financing is that you can only receive it for finished goods and products, not for raw materials, parts and components.

How Does Purchase Order Financing Work?

I’ll explain the whole process of PO financing at greater length in a future article, but for now, I’d like to give you an example of how it works.

Let’s say your company sent a PO for $1000 worth of construction equipment. The supplier then charges you $800 for this equipment and asks you to pre-pay for them. Unfortunately, you don’t have this money on you (remember the two problems with purchase orders we talked about in the introduction of this article?).

So how to get around this? By using purchase order financing and having a financial institution pay the supplier in your name, until you get paid by the customer. With this money, you can repay the financing institution, thus completing the circle, but without causing damage to your cashflow.

How does this work?

  1. You issue a PO to the seller for X amount
  2. The seller asks for a prepayment
  3. Your company turns to a bank for purchase order financing
  4. The bank reviews your credit, company and the transaction to make sure you check all categories
  5. They then pay the supplier. Directly. The money doesn’t go to the buyer and then to from him to the supplier, but directly from the bank to the supplier
  6. Once the supplier receives the money, they manufacture the equipment and send it to the buyer
  7. The buyer next inspects the goods and sends them to the customer, which they then invoice themselves.

This is, of course, a very simplified explanation of how purchase order financing works. There’s a lot more involved here and the process also involves other parties, like the shipping company. Also, should the goods fail the inspection and the customer refuses to receive them (either for being damaged or for some other reason), then that is a whole other problem, which this article is too short to deal with. We can talk about it in the future.

Conclusion

Purchase order financing is an excellent way to protect your cashflow when using POs.  However, you need to have a good credit record and reputation. Have you ever used purchase order financing? How did it work out for you? Let us know in the comments and don’t forget to subscribe your email to receive important updates to our Purchase Order Plus software.

10 invoice types you need to know about

10 Important Invoice Types You Need to Learn About to Operate a Successful Business

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Every industry is different, some are fast-paced, while others require more time. Construction, for example, takes more time than retail and transporting offers a completely different service than healthcare. But all industries in the end depend on a successful business transaction and every such transaction requires a record called an invoice. But not all invoice types are the same.

Here are 10 invoice types you need to know about:

1. Standard Invoice

A standard invoice is the most common type of invoice you might encounter and can be used across several different industries, including retain and wholesale. It consists of the names and addresses of the buyer and seller, their contact details such as email or phone number, company names, purchased item, total cost and an invoice number, which is unique for every invoice.

2. Pro Forma Invoice

A pro forma invoice is not an invoice in the typical sense we think about it. Instead, a seller will send a pro forma invoice to the buyer before actually completing the work for him to inform him how much he is ought to pay before the goods or services are delivered. Because of their nature, a pro forma invoice can be altered during the course of the project. It is also often commonly referred to as a quote.

3. Progress Invoice

Some work may take several weeks or even months to complete. For instance, this is the case with the construction industry. In that case, the contractor uses this invoice type to bill the employer and show the work progress. In addition he also quotes the amount the employer needs to pay. This is important if the contractor needs to pay their workers and cover expenses over a prolonged period of time.

4. Recurring Invoice

A recurring invoice is used at the end of the month. For instance, you might use them when renting something, like a house or machine.

5. Commercial Invoice

When working with a foreign or overseas buyer, the seller will use this type of invoice which includes the name and addresses of the sender and the recipient, items sold, item cost, the tax payable amount, but also includes the country of origin, carrier ID number, harmonized code for individual items, invoice declaration and a signature of the person responsible for the transaction.

6. Utility Invoice

I bet you didn’t know but that electric bill or internet service bill you receive each month is also an invoice. There’s a slight difference between a utility invoice and other invoice types. This invoice includes a due date it needs to be paid before, penalty in case the bill is not paid by that date and a billing period (typically one month).

7. Timesheet Invoice

If your services are more intellectual than technical and you prefer a payment based on the time, then a timesheet is usually the perfect choice. This kind of invoice is typically used by lawyers, consultants, physiotherapists and other professionals offering intellectual services.

8. Pending Invoice

If the recipient pays only a part of the invoice, the seller will continue to send him this type of invoice until the full payment is made. For instance, if the buyer receives an invoice for $100 and he only pays $50, next time the seller will send a pending invoice for the remaining sum, or in this case, $50.

9. Final Invoice

A final invoice is basically a demand for payment. The seller sends it after the project is fully completed to inform the buyer about this. This kind of invoice includes the information and addresses of both the buyer and seller, a list of product and services provided, their individual and total cost, payment methods and a due date.

10. Past Due Invoice

For one reason or another, the recipient fails to pay the invoice by due date. Of course, this doesn’t exempt them from paying, which is why you need to use a past due invoice to remind them of their obligation. This kind of invoice should contain all the information the original invoice had, but also any late fees and penalties that the customer now needs to pay for being late.

Conclusion

These were just 10 most common invoice types you might encounter and use in your business. There are, of course, many more, depending on your industry. Let us know if we forgot to mention any important invoice types and don’t forget to subscribe for Purchase Order Plus to easily create, approve and send purchase orders via mobile devices.

Purchase order vs contract differences

Purchase Order vs Contract: What is the Difference?

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Sometimes, it’s easy to get confused when working with purchase orders. For instance, we already talked about what makes them different from invoices, but that’s only one document. What about some other that you’ll be using in the course of a procurement and purchasing process? One important document that you shouldn’t mix up with POs is a contract you sign with the supplier. But what exactly is the difference between a purchase order vs contract?

Read this post to find out.

What is  a Purchase Order and What is a Contract?

To better understand the difference between a purchase order vs contract, you need to know what each of them are and what they are used for.

A purchase order is a document, today usually in electronic form, although paper is still used sometimes (though not recommended if it can be avoided) that you send as a buyer to the vendor to order a product or material that you need.

A PO usually includes:

  1. Buyer’s information (name, address and contact)
  2. Seller’s information (name, address and contact)
  3. Date when the PO is issued
  4. Details of goods such as description and quantity
  5. The amount of money the buyer is due for these goods
  6. A purchase order number
  7. Terms and conditions
  8. A signature of the person (purchase manager or procurement officer) responsible for authorizing the purchase order.

Once accepted by the seller, the purchase order becomes a legally binding document that both parties (buyer and seller) must follow to the letter.

And there lies all the confusion. At one point, the PO becomes legally binding, but only when it is accepted by the seller. On the other hand, a contract is legally binding from day one.

The difference, you see, is small, but it’s there. We just need to dig a bit deeper to reveal it.

How Purchase Order vs Contract Would Stand in Court?

So what about the legal value of purchase order vs contract? How would each of them stand in court? What probably confuses many here is when the PO becomes legally binding. As we already established, that only happens when the PO is accepted by the seller and not before. Until then, the PO is actually a commercial document. This means it has no legal value until that point.

A contract, on the other hand, is legally binding from the start and as such will hold much better in court.

A Contract is More Specific

Although PO and contract include much of the same information, the latter is more specific and goes into more detail. This is especially important for terms and conditions.

For instance, you should use contacts to define things like scope of work (SoW) and when there are more complex terms related to the purchase than is written in the PO.

They are Used for Different Things

Finally, a purchase order and a contract are, after all, used for different things. Normally, you would use a PO to order and purchase and item, while the contract is mostly used to pay for a service rendered.

This means you should think carefully and consider your business needs before making a decision which document, purchase order vs contract, to use when.

Concluion

Although similar, purchase order vs contract have clear differences in how they’re used, whether they are legally binding, what they’re used for and more. To ensure your business runs smoothly, you should know these difference and I hope this post helped you in that matter.

Do you have any questions or comments about purchase order vs contract differences? Let us know in the comments below and don’t forget to sign up for early access to Purchase Order Plus, a addon software for Xero that allows you to create, approve and send POs on any device.