What Is a PO Number?
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Summary:
A PO number is a unique number that helps a buyer keep track of a purchase order sent to a vendor or supplier. Purchase orders are important because they are legally binding documents that contain all the important information about the transaction. This information includes the types of goods, services, quantities, and prices. PO numbers can be generated manually or automatically.
Imagine this scenario: You’re a small business owner or accountant at a big firm, and audits are coming up soon. You’ve done most of the work, from checking credit reports to looking over checking accounts. Your firm has placed several purchase orders (POs) on different dates and with different vendors. These orders are saved in a database, but there’s no unique PO number that helps you search for them. So you do what any accountant in your position would do: you pull every order up and go through them manually.
Alternate scenario: You have the unique PO number for every order your firm has ever placed. You can enter this number as a reference and pull up specific purchase orders whenever you want. It saves you, the entire procurement department, and even the auditors a lot of time.
Although purchase order numbers seem like random numbers on a purchase order form, they are actually an important part of the entire purchase order process. Without them, businesses could encounter budgeting issues and other accounting errors.
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What is a PO number?
A PO number (short for a purchase order number) is a unique number assigned to a purchase order form. It helps buyers track and manage orders as well as keep records of each purchase transaction.
Purchase order numbers are especially important when working with a large volume of purchase orders. This reference can be generated automatically with accounting software like Excel, or it can be generated manually by the buyer.
Since purchase order numbers help with tracking, they should be referenced at almost every point throughout the entire transaction. This includes putting the number on an invoice, including it in shipping forms, and mentioning it in client phone calls.
How does a purchase order document work?
Before getting into purchase order numbers, there are a couple of facts you should know about purchase orders and how they work. A purchase order is a legally binding document that a buyer gives a vendor or supplier when placing an order. It describes details of the goods the buyer wants to purchase, such as the price, quantity, and types of goods.
A purchase order is typically a form that’s meant to clearly communicate the transaction details to the seller once the potential transaction is confirmed. Purchase orders provide clarity and bring order to the process. Since a purchase order is a legally binding document, it essentially serves as a contract that guides the transaction before shipment starts.
What a purchase order contains
The information you’ll definitely see in a purchase order includes:
- The date of the purchase
- The buyer’s contact information
- The seller’s contact information
- A unique purchase order number
- A delivery date
- Payment terms and deadlines
- A billing address
- Terms and conditions of the transaction
- All applicable taxes
Why are purchase orders important?
Purchase orders are important for a handful of reasons:
- They serve as contracts and finalize the prices of the goods so that both parties adhere to the transaction agreement.
- They provide bill transparency for businesses so that payments are made quickly — especially with payment methods like mailing checks, which take longer than other methods (checks accounted for 42% of B2B payments in 2019). Managing payments properly could even boost a business’s credit score.
- They show exact figures that determine what the buyer owes.
- They match the invoice to the right purchase after fulfillment is completed so discrepancies can be properly fixed.
- They help in managing inventory and planning for the arrival of the ordered goods.
- They simplify the auditing process. Having PO numbers makes it easier to show all the purchase information for specific orders within a given period.
- They make tracking faster, easier, and more accurate for both the buyer and the seller.
- They prevent incorrect filing or duplicate payments.
- They serve as evidence in case anything goes wrong with the order.
- They make it easier for the buyer to budget and keep track of changes in item prices over time.
Pro Tip
You don’t have to create a new purchase order for every transaction. For example, smaller transactions below a certain threshold set by the buyer don’t require purchase orders.
You also don’t need purchase orders in cases where the prices of goods or the total cost of the transaction are unclear. Legal expenses and marketing expenses are examples of these types of transactions. You most likely won’t see a purchase order with utility transactions, such as monthly recurring bills and subscriptions.
How do you get a PO number?
There’s no standard way to generate a PO number, so it depends on the buyer. A PO numbering system can be automated using software or created manually.
As long as you stick to the basics, it’s a fairly easy process that can be done in minutes. Here’s how you can create a PO number for a transaction:
How to create a PO number manually
Small businesses that don’t send out purchase orders frequently can opt for the manual PO number system. This PO numbering system is pretty straightforward. Since you only need a unique identification number for each transaction, you can choose to use any number.
To avoid confusion, you could use numbers in a specific order. For example, the first PO number a buyer issues could be 0001, followed by 0002, and so on. Businesses may choose to include letters or even symbols depending on the company’s practices.
Some small business owners generate purchase order numbers based on the date of the order. For example, the PO number for an order sent out on August 28, 2022, could be “PO 08282022-000001.”
How to generate a PO number with software
Many cloud-based accounting software have built-in purchase order number generators. If a small business already uses this type of software for general accounting, then it should be easy to generate PO numbers anytime. Alternatively, you can use an online random number generator.
Dedicated accounting software may be the most convenient option for generating purchase orders and order numbers. Since such software can perform many tasks, you’ll be getting a package deal.
Accounting software also generates form fields for purchase order information. It goes a step further by assigning new numbers to each one. Doing this manually would be exhausting for any procurement department. Some of the best software will also route purchase orders for a final sign-off after entering all order details.
If you have low order volumes, then this option may not provide as much value as it would for businesses with higher order volumes.
Where to put the PO number on an invoice
Purchase order numbers are usually found at the top of a purchase order for the convenience of the buyer and the seller. The specific position depends on the template you use. (You can find examples of purchase order numbers and templates here.)
Pro Tip
Always include other important information — the vendor’s name, total amount, payment terms or methods (like credit or check), and any order requests — if it’s not already in the purchase order. You should do this for every transaction. It’s also a good idea to enter all this information into a separate spreadsheet so that you have more control over your finances.
PO invoice vs non-PO invoice
The major difference between a PO and an invoice is that the buyer writes the PO before the transaction. On the other hand, the seller draws up an invoice at the end of the transaction to let the buyer know the amount that should be paid.
Another difference is that purchase orders have numbers, while invoices do not. Non-PO invoices don’t need invoice numbers because they come after the transaction. They are not pre-approved, and so they lack a purchase order to attach a trackable number to.
Another type of document you might see is a sales order, which is sent out by a vendor to a buyer to confirm a specific transaction before the order is fulfilled.
FAQ
What is a PO number example?
An example of a PO number is 00001 or 000054. Businesses also tend to add dates in PO numbers to make them more informative and easier to track.
How do you get a PO number?
You can get a PO number by creating one manually or generating one using software like Excel.
Is a purchase order the same as an invoice?
No, a PO and an invoice are different. A PO is written by the buyer before a transaction, while an invoice is written by the seller at the end of the transaction to show the buyer what should be paid.
Why do you need a PO number?
You need a PO number to help with tracking, communication with the seller, auditing, and streamlining of the transaction. It also serves as an identifier that helps you pull up your purchase order if something goes wrong with the transaction. Checking the purchase order exposes the root of the problem so that it can be fixed.
Why are PO numbers so important?
PO numbers are important because it’s difficult to manually keep track of large transactions, especially within companies that handle a lot of procurement within a short period of time. Without a unique reference number for each large purchase, accounting and auditing can quickly become a nightmare.
Key Takeaways
- A PO number is an identification number that serves as a reference for a purchase order sent by a buyer to a vendor or supplier.
- A purchase order serves as a legally binding contract. It also contains important information about the transaction, such as the types of goods, quantity, and prices.
- PO numbers can be generated manually or automatically with software. These can be numbers or strings of numbers, letters, and symbols.
- A PO number is usually found at the top of a purchase order for easy reference.
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