What Is a Purchase Order Number? 12 Facts You Need To Know

A purchase order number is a unique number provided to a purchase order, which is an official confirmation of a buyer’s desire to purchase from a vendor, including the transaction’s particulars. Continue reading to learn all you need to know.

What Is a Purchase Order Number?

A purchase order (PO) number is an alphanumeric code issued to a specific request for something to be purchased. Most frequently, firms use PO numbers internally to track their own transactions.

However, some businesses issue codes to all of their transactions and provide their clients with PO numbers so they can monitor their orders.

What Is a Purchase Order Number?

These codes can be in any alphanumeric format, and many businesses employ particular letters or numbers to signify specific order information, such as the item being sold, the location, the buyer, and the date.

How Does a Purchase Order Work?

At the beginning of a transaction, the buyer (or client) of a product or service creates and issues a Purchase Order. It describes the specifics of a transaction, including the items or services requested, the quantities, and the agreed-upon price.

A properly completed purchase order should be sufficiently thorough for the seller to comprehend it without having to ask questions. Since both parties have authorized the purchase order, it is deemed legally binding.

The purchase order number, which is often located at the top of the form, will be referenced throughout the whole transaction, including in client phone conversations, shipping forms, and ultimately the invoice

How is a Purchase Order Number Created?

A purchase order number is assigned by the buyer. One may generate or assign order numbers in order to keep track of each transaction.

Various accounting software can assign a number and automatically generate a field on the purchase order form for entering this number. This saves you much time and effort and simplifies your work.

PO Numbering System

There are two approaches to creating a PO number.

Manual:

Manually creating PO numbers is a viable option for small businesses with a limited quantity of purchase orders. A PO number can be created using a combination of letters, digits, and dashes.

What Is a Purchase Order Number?

For instance, you may add numbers to the ‘PO’ and construct it as follows: PO 0001 and number subsequent PO forms in ascending order. You can also provide the date the PO number was generated, such as PO 06052021-0001. This will also help you recall the date the PO was issued. Whatever you choose to do, it must make sense.

Automatic:

If the quantity of purchases rises, it is preferable to automate the process, as doing so manually would be laborious and time-consuming. Any cloud-based accounting program that produces PO numbers automatically can be utilized. This program will also streamline the entire purchasing procedure and keep track of each order.

How Are Purchase Order Numbers Made?

As there is no industry-wide standard for the activity, the method by which organizations generate purchase order numbers varies.

But before you start arbitrarily assigning tracking numbers to your purchase orders, let’s go through a methodical method for doing so, so that you can make the most of this numbering system.

Importance of a Purchase Order Number

A purchase order is issued by the buyer, while the seller issues an invoice. However, regardless of your position, you would require a purchase order form. This form contains the PO number that expedites and simplifies the order tracking procedure.

If you need to inquire about an issue with a purchase order that is several months old, you can use the PO number to search down the buy order form or invoice.

The invoice includes the PO number, which helps to identify the PO form. In addition, the PO number reduces the likelihood of accounting mistakes, improper information entry, and duplicate payments.

Providing superior customer service and having a professional demeanor are vital to the financial sustainability of your organization.

What Is a Purchase Order Form?

When a buyer or client wishes to acquire items or services from a vendor or supplier, the buyer utilizes a purchase order form to express the precise nature of the transaction, including the product quantity, delivery date, and other pertinent details.

It is generated following the internal approval of the purchase request, and then forwarded to the vendor for fulfillment. The PO is now recognized to be a legally binding document.

What Is a Purchase Order Number?

In addition to the elements listed previously, a typical purchase order will also include the following:

  • Date of the purchase
  • Terms and conditions of payment
  • Date of delivery and payment due dates
  • Applicable taxes
  • Contact details for both the client and the vendor.
  • The billing location
  • A unique PO number

A purchase order effectively clarifies the transaction for both the buyer and the seller, becoming a legal document that puts everything in stone prior to shipment.

There are a few unique circumstances of POs, such as blanket purchase orders for recurring transactions over a period of time, but we’ll keep things simple for the purpose of this article.

What Is a Purchase Order Number Used for

There are several advantages to utilizing a PO number, especially for sellers. The system offers a method for staying organized and informed, as well as enhancing contact with the consumer.

Larger orders may necessitate greater resources and time, whilst smaller orders may demand less time and resources. During this lag period, both parties wish to maintain a professional demeanor and keep informed of the order’s status.

The PO number provides a way to track the purchase through each step, ensuring that it is carried out accurately and efficiently. For instance, the ordering process may involve numerous steps, such as gathering supplies, packaging, and shipping.

Moreover, if a buyer wishes to follow up on an order, the team may utilize the PO number to swiftly find the proper order and supply the customer with the requested information.

In addition, the purchase order itself is a legally enforceable instrument. It helps ensure payment for products or services. The number enables administrative members to swiftly detect outstanding bills and pursue the financial responsibility. During tax season, the number may also be useful for auditing and validating annual sales.

In addition, owners may use the purchase order number to analyze current inventory levels, keeping track of each request and how much is anticipated to depart the system.

The purchase order and number assist team members to determine if they need to replace things in the event of big purchases.

What Is a Purchase Order Number?

How to Create a Purchase Order Number System

Creating a buy order number system may be accomplished in a variety of ways. Some small firms may have the option to build their own buy order templates and manually give purchase order numbers to all new purchase orders and invoices.

Larger organizations, on the other hand, may be dealing with a significantly greater frequency of transactions, to the point where manual purchase order number entering is impracticable and time-consuming.

Therefore, many cloud-based accounting solutions can automatically create pertinent purchase order information, including the assignment of unique P.O. numbers to each purchase order.

Top Purchase Order Number Generators

The term “buy order number generator” is not inclusive of many resources, especially those that can be purchased.

Purchase order number creation is a feature of many cloud-based accounting solutions and enterprise resource planning systems (ERPs), so if you use one of these systems to construct your purchase orders and invoices, you should have little issue producing these identifiers.

You can generate buy order numbers using a random number generator or a random number generation technique if you produce your purchase orders manually or using an application such as Excel and you do not require them to be consecutive or of a specified length.

Consequently, it is likely in your best interest to use specialized accounting or enterprise resource planning software to generate your buy orders and, consequently, your purchase order numbers. Unless your sales volume is really low, it is usually worthwhile to invest in one of these systems to save a substantial amount of time and effort.

Why Do Purchase Orders Matter?

We’ve mentioned that purchase orders solidify any communication between the buyer and the seller regarding a specific transaction, but there are other reasons to use POs. Companies go through the trouble of working with these documents for several reasons:

  • Tracking transactions: The purchasing company can use a purchase order to maintain track of orders, the expected delivery date, and confirmation of delivery via a goods received note. Having a physical record makes operations management and budgeting considerably simpler.
  • Legal binding: Essentially, purchase orders are legal protection for the transaction. Should there be any delivery issues or payment difficulties, both parties can refer to the PO to determine who is at blame and who is responsible for resolving the issue.
  • Auditing: A purchase order serves as a conclusive paper trail to cross-check invoices and generally validate your purchasing activities in the event of a financial audit.

It is important to note that a purchase order is not required for every transaction. Examples include the following:

  • Transactions where the amount is below a certain threshold: To streamline processes, the majority of businesses skip the purchase order phase when the quantity of money is modest enough.
  • Purchases where the total cost is initially unknown: Advertising and legal costs, for example, do not employ purchase orders.
  • Certain regular payments: Utility costs such as electricity and gas, as well as subscription services, are often billed on a monthly basis.
  • Expense reimbursements: These internal payments to workers for travel expenses, supplies, and other things are processed through a reimbursement request rather than a purchase order.

POs are essential to order fulfillment and buyer-vendor communication, but they are not the only papers to manage.

Four features to look for when choosing Purchase Order Tracking software

A decent purchase order tracking system should contain the following four features:

  • Automatic quantity updates
  • Reporting expertise
  • Technical submission competencies
  • Additional feature capabilities

Purchase Order Number and Invoice Number

How Is a Purchase Order Number Different From an Invoice Number

Prior to the invoice is the purchase order number. When a customer orders something, companies generate a purchase order (PO) to symbolize the request and track it along the supply chain.

The form outlines the products that must be gathered and delivered to complete the transaction. This number is useful throughout the collection and shipping phases.

When a product reaches its destination, companies offer a bill number. The management discovers the amount payable for the provided items in this documentation. Additionally, the invoice form indicates how much the organization owes to the original supplier.

If a tile firm accepts a request for 40 boxes of a certain product, the salesperson places a purchase number towards the top of a PO form. The seller and purchaser each receive a copy.

If both parties agree to the amount, this paper verifies a purchase agreement. The seller submits the purchase order, requesting that staff assemble and deliver the required materials to the other vendor.

During the specified time period, the seller may request progress checks using the purchase order number. Meanwhile, the seller monitors the process to guarantee its efficacy.

When delivery happens, the purchase order expires and the invoice becomes essential. The customer must now pay the supplier for the products and services rendered.

Essentially, the two numbers operate together to allow both parties to grasp the general development and ensure the agreement between the two areas. The first event occurs prior to the second. Expect to see the PO number on the invoice so that everything can be accounted for in a unified manner.

Where to Put the P.O. Number on an Invoice

For ease and easy identification, purchase order numbers are often printed at the top of invoices; however, the precise placement will depend on the P.O. template you choose. The following is an illustration of a Chargebee invoice:

If there is one thing to take away from this piece, it is this: Keep track of your purchase orders. These documents are essential for keeping correct records, being ready for audits and other accounting processes, and holding vendors and purchasers accountable for any irregularities in how orders are delivered.

Purchase order numbers are essential to a company’s capacity to keep track of such papers, so it is essential that you understand what they are, how they are formed, and where they can be found.

How Do Purchase Orders and Invoices Work?

At the beginning of a transaction, the buyer (or client) of a product or service creates and issues a Purchase Order. It describes the specifics of a transaction, including the items or services requested, the quantities, and the agreed-upon price.

A properly completed purchase order should be sufficiently thorough for the seller to comprehend it without having to ask questions. Since both parties have authorized the purchase order, it is deemed legally binding.

The purchase order number, which is often located at the top of the form, will be referenced throughout the whole transaction, including in client phone conversations, shipping forms, and ultimately the invoice.

What Is a Purchase Order Number?

The seller issues an invoice at the conclusion of the transaction, following satisfaction of the terms indicated in the purchase order. The bill is the invoice. As with the purchase order, it will specify the items or services supplied or offered by the supplier, including quantities and prices.

In addition, the PO number will be referenced to indicate that this transaction was pre-approved. The buyer is required to pay according to the conditions previously agreed upon upon receipt (for instance, the seller may require payments from all its vendors within 30 days).

What Is P.O. Invoice and Non-P.O. Invoice?

A P.O. invoice is an invoice that includes a reference to the purchase order number. A non-P.O. invoice does not. A non-P.O. invoice indicates that a purchase order was not made nor necessary for the transaction being invoiced. Possible causes for not producing a purchase order:

The order was urgent and immediately processed (in other words, the customer did not have time to issue one).

The transaction was less than a certain monetary amount. Many firms’ policy is to only issue purchase orders for transactions that surpass a certain financial level. For example, a business might not require purchase orders for all transactions under $10,000. If so, management clearance is necessary for the purchase order.

The business requiring the service or product is so tiny that it lacks the resources to implement an effective accounting or buy order system.

Optimizing Purchase Order Processing Should Be a Top Priority

Purchase order numbers are simply unique identifiers for each PO document you transmit to another organization. These numbers simplify document handling and aid in financial audits.

How you handle purchase order numbers is entirely up to you. While it is possible to develop your own internal system of numbers, it is strongly advised to outsource the task to a third-party platform as the size and complexity of your purchasing activity increases.

The key to optimizing the PO processing and approval cycle is deploying the appropriate tools and automated technologies to complete the task fast and properly.

Conclusion

A PO number is a request for goods and services that has been approved by a customer. This document is used as a form of payment for the goods or services ordered.

The purpose of a PO is to make sure that the supplier receives payment for the goods or services being provided to the customer.

A PO is an order and not a contract. You can’t issue a PO until all of the terms of the agreement have been agreed upon and signed.

In the United States, the first three numbers of the PO are called the reference number, which is typically a six-digit number. The fourth and fifth digits are a check digit. The final digit is a code.

FAQ

PO numbers are decided by the buyer. If you’re one of the small business owners with relatively few purchases to make, creating a unique PO number is straightforward. Just use a unique number assigned to identify each transaction. For example, 00001 for the first one followed by 00002, 00003, 00004, and so on.
A purchase order number is a unique number assigned to a purchase order — an official confirmation of a buyer’s intent to purchase from a vendor, covering the details of the transaction. A purchase order number helps both vendors and buyers track and reference the orders they’ve sent or received.
A PO is generated when the customer places the order, while an invoice is generated after the order is complete. A PO details the contract of the sale, while an invoice confirms the sale. Buyers use POs to track accounts payable and sellers use invoices to track accounts receivable (in their accounting records).
When should I create a PO number? Every transaction should have a PO number, to be generated and applied to a purchase order at the start. If a customer orders a service one month, that purchase should generate a purchase order, even if the same customer orders another service the following month.
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Pat Moriarty
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