Table of Contents
A purchase order (PO) is a business document that a customer issues a supplier. It records quantities, prices, and payment terms for the goods or services being purchased. The PO number given on that document is then used on subsequent invoices to connect them with the PO and to facilitate tracking of the details of what’s being purchased. Understanding a PO number’s meaning, how it’s generated, and what it’s useful for can help you maximize the benefits of this business staple.
Key Points
• A purchase order (PO) is a business document that a customer issues to a supplier, recording quantities, prices, and payment terms for goods or services being purchased.
• The buyer originates the PO number when creating a purchase order, typically using numeric sequences or alphanumerics to ensure each number remains unique.
• A PO number tracks purchase authorization while an invoice number tracks payment requests, with the buyer issuing the PO number and the seller assigning the invoice number.
• PO numbers help prevent disputes by creating a documented chain of events showing what was ordered, delivered, and billed.
• A purchase order loan covers supplier costs for a confirmed order until the customer pays.
What Is a PO Number?
A PO number is a unique number assigned to each purchase order (PO) form. It’s generally found at the top of the purchase order.
The PO number helps to authenticate the transaction for legal purposes as well as for convenience and tracking. For each purchase order, the relevant PO number is included on all related documentation, including invoices, delivery receipts, and correspondence.
PO Number Meaning and Purpose
A PO number makes it easier to match what you ordered, what you were billed for, and what you received. This helps connect the purchase order with the invoice and serves as a tracking number for an order. If there are issues — if you’re billed for something you didn’t order, for instance — the PO number can help identify what went wrong. Plus, if you use accounting software, the PO number can trigger automated payment approvals by matching the invoice with the PO details. It can also be useful in the case of an audit since all orders are tied to a PO number for record maintenance.
Where Does a PO Number Come From?
The PO number originates with the buyer. When a buyer creates a purchase order, they assign it a unique purchase order number. A business generally creates PO numbers in numeric sequence or uses alphanumerics to make sure each PO number is unique.
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How the PO Process Works
There’s no universal standard for creating a PO number. Each organization may have its own process. However, each PO number must be unique to avoid causing confusion for the organization.
PO numbers can be created manually or by using automation solutions. Generating manual PO numbers involves making unique identifiers for purchase orders without relying on automated systems. This is more common in smaller businesses or for sole proprietorships.
Automatic PO numbers are generated by software or a system without manual intervention. This is commonly used in larger organizations or those with integrated procurement management systems. Automation helps businesses ensure accuracy and eliminate manual errors, enhance efficiency in procurement processes, and facilitate accurate tracking of transactions from initiation to fulfillment.
Once the number has been created, invoices and other documents relating to this purchase (or recurring purchase) will all include the PO number, making it easier to identify and track anything related to the transaction.
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Where To Find a PO Number on an Invoice
The PO number on an invoice is usually placed toward the top, near the invoice number, invoice date, and customer details. It’s often labeled “PO number” or “Purchase Order Number” to make it clear. This makes it easier for the person approving the invoice to locate the PO number quickly and match it to the corresponding purchase order without searching through the document.
PO Number vs Invoice Number
There are a number of differences between a PO number and an invoice number. A PO number tracks purchase authorization, while an invoice number tracks payment requests. The buyer issues the PO number to the seller; the seller assigns the invoice number.
The timing of PO number and invoice number also differs. The PO number is issued before the purchase takes place, while the invoice number is issued after goods and services are delivered.
Finally, a PO number helps in budgeting, planning, and managing procurement processes. An invoice number helps in accounts payable processes, payment reconciliation, and financial reporting.
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Benefits of Using PO Numbers for Your Business
A PO number can help prevent disputes because it enables a documented chain of events that shows what was ordered, delivered, and billed. This helps eliminate any confusion between parties over what terms were set. Customers can also cross-check their invoice against the PO to confirm the details match using the PO number.
In certain circumstances, businesses may have a customer order that the business wants to fulfill but doesn’t currently have the cash to pay its suppliers so that it can do so. In that case, the business can apply for a purchase order loan. A purchase order loan, or purchase order financing, is a type of business loan that can typically be used for whatever a business loan can be used for.
A purchase order loan covers supplier costs for a confirmed order until the customer pays.
It’s similar to a cash flow loan in that it’s a short-term business funding tool that improves cash flow.
A purchase order loan is most often provided by specialized lenders or alternative online lenders. When the borrower is an online retailer, they may want to go to a lender that specializes in ecommerce loans.
The Takeaway
Using a PO number for your business can have a lot of benefits, and the process is generally simple and straightforward. However, it can be wise to avoid common mistakes when using PO numbers, like leaving out the PO number on some documents, using the wrong PO number, and failing to match details.
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FAQ
What does PO number mean on an invoice?
A PO number on an invoice is a unique purchase order identifier issued by the buyer to authorize and track a specific order.
Who creates the PO number, the buyer or the seller?
A purchase order number is created by the buyer. When a buyer creates the PO, they assign a unique PO number to their order to identify and track it.
Do all businesses need to use PO numbers?
No, PO numbers are not legally required for every business. Use of a PO number may depend on factors such as transaction amounts, whether tracking is required for compliance, and vendor requirements.
What happens if an invoice doesn’t include a PO number?
It’s possible to submit an invoice without a PO number. However, it may cause delays and potential issues down the road.
How should a small business format and assign PO numbers?
PO numbers can be created manually or using automation solutions. Many small businesses may prefer to create PO numbers manually. Generating manual PO numbers involves unique identifiers for purchase orders without relying on automated systems.
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