PO vs. Non-PO Invoice: Understanding the Key Differences

The accounts payable process involves ensuring the validity of invoices and getting them approved before processing payments. These invoices can be divided into two categories - PO and non-PO invoices. AP teams worldwide use invoice matching techniques to ensure they’re paying for goods and services the team procures. The PO or purchase order is one of the most essential documents regarding invoice matching. 

In this blog, we’ll discuss the differences between PO and non-PO invoices and the method of accounting used for both. 

What is a PO?

A PO or a purchase order is a document buyers send to vendors requesting the purchase of goods or services. A company issues a purchase order after the purchase has been approved and the vendor has been selected. Thus, purchase orders act as legal obligations in encumbrance accounting. After receiving a PO, the vendor uses it as a reference document to complete the delivery. 

What are PO invoices?

Simply put, purchases backed by a purchase order are PO invoices. These purchases are made after the procurement team has evaluated and approved the purchase requisition, leading to these invoices moving quickly through the accounts payable process. 

Some examples of PO invoices are:

• Vendor invoices 
• Invoices that are related to the purchase of goods

What are non-PO invoices?

Non-PO invoices are invoices that aren’t backed by a purchase order. These invoices are generally related to indirect spend and are not made via the purchase requisition processes and hence require additional approvals in the accounts payable function. 

Some examples of non-PO invoices are: 

• Reimbursement of employee-related expenses
• Service-related purchase 

Key differences between PO and non-PO invoices

PO and non-PO invoices are processed and treated differently when accounted for. They also vary significantly in risk, processing time and accounting process. 

• Definition: PO invoices are invoices backed by a purchase order, whereas non-PO invoices are not backed by a purchase order. Supporting documents like delivery receipts can be used when verifying non-PO invoices. 
• Processing time: Many PO invoices already have pre-approved purchase orders to verify validity. Hence, they get processed significantly faster than non-PO invoices. 
• Approval process: PO invoices often don’t require additional approvals since the purchase order has already been approved. The invoice is matched to the purchase order to ensure its validity. Non-PO invoices usually don’t have any backing documents and must go through a strict approval process. 
• Risk mitigation: PO invoices contain a trail of purchase orders and purchase requisitions informing its history. This dramatically reduces the risk of invoice and vendor fraud associated with non-PO invoices. 
• Visibility: PO invoices are generally more transparent than non-PO invoices due to their readily available history. 
• Type of purchase: PO invoices are generally related to direct spend, whereas non-PO invoices are usually related to indirect spend. 

How are PO invoices processed?

• Purchase requisition and PO generation: When the need for a purchase is identified, the concerned department fills out a purchase requisition form. The company's procurement department verifies the purchase requisition form and sends a purchase order stating the required goods or services to a selected vendor. 
• Goods delivery and invoice sent: After receiving the purchase order, the vendor delivers the goods to the company along with a receiving receipt. The procurement team checks the goods and fills out an inspection report. 

After delivering the goods, the vendor sends an invoice to the company’s AP team and the due date for payment. 

• Invoice data capture and matching: The AP team processes the invoice by entering invoice details into their accounting system and assigning GL codes and cost centers. The team then matches the invoice with its corresponding purchase order and other documents to verify the delivery of goods and the invoice’s validity. 
• Approval (optional): The AP team can send the invoice for approval to verify any discrepancies between the invoice and supporting documents. Discrepancies above a certain threshold are raised to the vendor. 
• Payment processing: After the invoice has been processed and approved, it is processed for payment. 

How are non-PO invoices processed?

Non-PO invoices generally don’t go through standard procurement functions like purchase requisition and PO generation in the company. These invoices are typically related to ad-hoc purchases made by a department and need to go through an approval process. 

• Goods purchased from vendor: Goods are purchased from the vendor without filling a purchase requisition or generating a purchase order.
• Goods delivery and invoice sent: The vendor delivers the goods or services to the company based on the requirements. The company may require a goods receipt or inspect the goods upon delivery and raise issues with the vendor. The vendor then sends an invoice to the company.
• Invoice data capture: The accounts payable department processes the invoice by entering data into the accounting system and assigning general ledger codes. The AP team also assigns relevant approvers to the invoice based on company policies. 
• Match goods delivery receipt (optional): The AP team might choose to match the goods delivery receipt or inspection slips to the invoice to confirm the goods supplied, if applicable. 
• Strict approval process: If required, The invoice gets sent for approval to one or more business approvers. Non-PO invoices are generally not paid without gaining relevant approvals. 
• Payments: After all approvals have been obtained, the invoice is processed for payment. 

How AP automation can help you process PO and non-PO invoices

Managing risks and time while processing PO and non-PO invoices can be challenging. Adopting AP automation solutions that aid accountants by reducing manual AP workload and time to process invoices can significantly help reduce late payment fees and avoid invoice fraud. 

Most AP automation vendors automatically capture invoice data while assigning GL codes and cost centers, matching invoices with POs and assigning approvers according to pre-set workflows. ClearTech’s AP automation software even allows business approvers to approve or reject invoices with a single click on their email or Slack accounts. ClearTech sends automatic approval reminders and displays critical approval TATs in its AP dashboard, facilitating timely approvals and invoice payments. 

Conclusion

Purchase orders are a request for goods or services a company sends to its vendors. PO invoices are backed with a purchase order, whereas non-PO invoices aren’t. Both PO and non-PO invoices are processed differently in the accounts payable process. PO invoices are matched with their purchase order for verification and don’t require approvals. Non-PO invoices, however, require approvals from business approvers since they lack invoice trail. PO invoices are generally more transparent, less prone to risks and take less time to process than non-PO invoices. Adopting AP automation tools can significantly help reduce processing times and risks associated with non-PO invoices.