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Junior accountants see four purchase documents for one supply and are not sure which one to trust before paying.
The purchase order fixes rate and quantity, the delivery challan shows what moved, the GRN shows what was accepted, and the tax invoice shows what is billed. Payment should follow the lowest agreed figure across them.
Keep PO number, GRN number and invoice number on each payable entry, and record accepted and rejected quantity on the GRN.
Over-billing, short receipts and rate changes are caught before payment, and input tax credit rests on a recorded receipt of goods.
A purchase order shows what you agreed to buy. A delivery challan shows what the supplier sent. A goods received note (GRN) shows what your store accepted. The tax invoice shows what the supplier is billing. Payment should rest on all four agreeing.
Most payables problems in Indian businesses start when one of these four documents is skipped or not compared. This guide explains each one in plain words.
What does each purchase document prove?
| Document | Issued by | What it proves | Key fields | The usual error |
|---|---|---|---|---|
| Purchase order (PO) | Buyer | What was agreed: item, rate, quantity, terms | PO number, rate, quantity, delivery date, payment terms | Rate or quantity changed by phone and never updated on the PO |
| Delivery challan | Supplier | That goods moved, sometimes without an invoice | Challan number, description, quantity, vehicle details | Goods moving on a challan with no invoice following later |
| Goods received note (GRN) | Buyer’s store | What actually arrived and was accepted | GRN number, PO reference, quantity received, accepted and rejected | Store records the full quantity without noting rejections |
| Tax invoice | Supplier | What is being billed, with GST | Supplier and buyer GSTIN, HSN code, taxable value, tax rate, tax amount | Invoice bills ordered quantity, not accepted quantity |
A PO is the buyer’s promise. The challan and GRN are evidence of physical movement and acceptance. The invoice is the supplier’s claim. They answer different questions, which is why one cannot replace another.
A worked example: where the money leaks
A garment unit raises a PO for 500 metres of fabric at ₹240 a metre. The order value is 500 × ₹240 = ₹1,20,000.
- The supplier’s delivery challan shows 500 metres sent.
- The store inspects the fabric. 15 metres have dye defects. The GRN records 500 received, 485 accepted and 15 rejected.
- The tax invoice bills 500 metres at ₹240, a taxable value of ₹1,20,000, plus 5 percent GST.
The accepted value is 485 × ₹240 = ₹1,16,400. The invoice over-bills by 15 metres, or ₹3,600 before GST. If the accountant only compares the invoice to the PO, both say 500 metres and the bill looks correct. Only the GRN shows the gap. The right step is to ask for a credit note for ₹3,600 plus the GST on it, or a revised invoice, before paying.
(The GST rate on fabric depends on the HSN code and value; 5 percent is used here only to show the step.)
Why is proof of receipt of goods needed to claim input tax credit?
Under Section 16(2) of the CGST Act, 2017, a buyer can claim input tax credit only when it holds a tax invoice, has received the goods or services, the supplier’s details appear in the buyer’s GSTR-2B, and the tax has been paid to the government. Receipt is a condition, not a formality.
The GRN is the normal internal record that receipt happened, and on what date. If a tax officer or auditor asks whether goods billed in September were really received in September, the GRN, the challan and the transport record are what you show. Credit claimed on goods that never arrived, or were rejected and returned, has to be reversed.
What if goods arrive before the invoice, or the invoice before the goods?
Both happen every month.
- Goods before invoice. The store books a GRN. At month end you have a liability for goods received but not yet billed. Many teams book a provision so the month’s costs are complete, then reverse it when the invoice arrives. Do not claim input tax credit until you hold the invoice.
- Invoice before goods. Hold the invoice as pending. Do not book the purchase as received and do not claim credit until the GRN is made. If the goods arrive in the next month, the credit belongs to that later period.
- Goods on a challan only. When goods move for job work, on approval or as a branch transfer, the supplier may send a challan with no invoice. Track these separately so they are invoiced or returned and do not sit open for months.
A simple register with PO number, challan number, GRN number and invoice number in one row makes these timing gaps visible.
What to read next
Once you know what each document proves, the next step is the habit of comparing them before money leaves the bank.
- Before you pay a vendor invoice: seven checks turns these four documents into a payment checklist.
- What is three-way match explains the formal control built on the PO, GRN and invoice.
- Goods receipt note (GRN) reconciliation in India shows how to clear GRNs that have no invoice and invoices that have no GRN.
- For how matching fits a wider finance process, see three-way matching in India.