What is a PO Number? Complete Guide

Being a contractor, you have to manage and organize several elements of the business like purchases.

You have decided to purchase supplies for your contract business, but do you think informing the seller about the purchases verbally is enough? No, it is not. You need a document that confirms that both vendor and seller are on the same page.

Here, purchase order comes into the picture and that’s what our blog is all about. Let’s discuss briefly the PO number and what is a PO number on an invoice?

First, let us clarify the concept of what is PO number?

Understanding Purchase Order (PO) Numbers

A purchase order number is a unique number assigned for a specific transaction. It is given after a process of purchase between buyer and seller. Let us simplify for you:

For example, buyer name A wants to purchase supplies of 2 Kg from the seller name B. After the buyer placed the order, the seller will give a document mentioning the purchase order. To not confuse transactions, the seller gives a purchase order number for that 2 Kg order.

In legal terms, it becomes a legally binding contract. Once the seller issued the purchase order number, the buyer cannot deny the transactions. It is also a proof document for both buyer and seller.

The purchase order number is created at the beginning of the transactions and in the legal binding contract quantities, price, payment terms, and issue date should be mentioned. Moreover, it should outline detail of payment terms like it should be paid within 30 days or more.

Now, once we are clear with the concept of the purchase order number, let’s deep dive into why a PO number is needed?

Why PO Numbers Matter: Benefits and Importance

The purchase order number is also known as the purchase order tracking number because it helps vendors and purchases track purchases with the unique number. Initially, it may seem like a minor thing, like just a part of the document but it is crucial.

For instance, if you are tallying a balance sheet, with the PO number you will be able to find purchase transactions history rapidly. It helps companies in making changes and optimizing business finance. POs become the deciding factor of a company’s performance for a specific product.

The number is also the reason for recording accounts’ details and contains all the essential information needed for a successful business process. Information stated in the PO number system such as the number of purchased items helps businesses in setting up the profit target and the required volume of sales.

The volume of purchases specified in the PO may be the basis for making decisions regarding the payment cycle, cash flow, and business processes.

However, in the business finance process, several business owners mistake invoice numbers and purchase order numbers as the same. No, it is completely different. The invoice comes in the end process of transactions and you will find the PO number on an invoice.

Let us understand more briefly about the PO number on an invoice in the next section.

How Purchase Orders and Invoices Work Together

A purchase order is made and issued based on the delivery date by the client or buyer of particular goods and services at the beginning of a transaction to help the payroll firm. It entails the order details of a specific sale, such as the service or products required, the price agreed upon, and the amounts paid.

The PO number depends on the template of the invoice you used or choose. However, it is usually located at the top of an invoice. And it can be referenced throughout the whole transaction, such as shipping forms, and the client’s phone number.

Now, talking about the invoice. The seller usually issues invoices upon completion of a transaction after the terms outlined in the purchase order form have been agreed upon by the purchasing department.

The invoices serve as the bill. Just like the purchase order, it’ll also list important details about the service provided or delivered by the seller, including price, quantities, and mode of payment like credit card or bank account.

Most of the time, it also references the PO number indicating the transaction was pre-approved. After receiving the invoices, the buyer is expected to pay within the terms that were previously agreed upon (for example, the seller requires payments within two weeks).

Do you know not all invoice has PO number? Yes, there are non-PO numbers as well. Let’s discuss more about it.

What are P.O. invoices and Non-P.O. Invoices?

Purchase Orders are a form of an invoice that helps to reference the purchase order number with the actual invoice. A non-PO number invoice is unable to do this. Invoice means the purchase order is not required for the transaction of services to get billed for.

Some of the reasons for not generating a purchase order include:

The order was processed too quickly (the customer didn’t have the time to give one)

The transaction wasn’t up to a specific amount or dollar figure. Some companies have the policy and payments term not to issue POs for transactions that did not exceed a particular dollar value.

For instance, some companies believe that they do not need any purchase order for transactions below $10,000. If a purchase order is required with a reference number, it will be forwarded for management approval.

Hope you are clear with the difference and now you can decide whether you need a PO number for your business or not. We also have a quick solution if you want to create PO numbering faster.

Step-by-Step Guide to Creating PO Numbers

There are two ways to create a PO number system, one is manual, and the other is by using automatic software.

1. Manual PO numbering systems

   In a manual numbering system, you have to use a computer and generate a PO number manually. You need to include and write all detailed information like quantity, price, date, contact number, and name.

   The numbering can be a mixture of numbers, letters, and dashes. For instance, the seller issued a purchase order document and give #0003 PO number. It is a good practice if you are handling small businesses. If you are running a large business, you should try to automate software.

2. Automated PO number generation

   In the automated software system, the software generates PO numbers automatically. It is an easy method for businesses that handle too many purchase orders and business expenses.

   It makes your time-less consuming and the chances of missing any details decreases as every piece of information are recorded.

   Thus, to make your PO numbering system effortless, automate software like InvoiceOwl. It helps you to automate the entire purchase order process within a few clicks.

3. Common PO number formats

   Ideally, the combination of numbers, letters, and sometimes symbols is used to create a unique identification for transactions. Some use sequential numbers (e.g., PO#001, PO#002), while others add prefixes or suffixes based on dates, departments, or subject codes.

   This categorization helps businesses to easily track the invoice whenever necessary. For instance, a professional can find an invoice by using the type of origin for the product. What’s more, companies also customize formats as their operations grow bigger.