What is a Purchase Order (PO) Number & How do I Create It?

PO number is a unique identifier for a specific transaction present on a purchase order form which is legally binding.

Hence, whoever started a business or has been freelancing for a while would be aware of this term. This number is not only vital for PO orders but also is referred to during invoicing. Purchase Order or Invoice both relates to the financial documentation of a business transaction. Both the purchase order and the invoice are the most essential financial documents of a business transaction.

But if you are planning to start your business and wondering what’s the purpose of having a PO number, then do check out this article to know more about this!

Yeah! We’re gonna talk about the PO number. But let’s first understand the basics of Purchase order.

What is a Purchase Order?

Purchase Order is issued by the client and includes all the information related to the purchase of a product or service. Moreover, the details involved need to be accurate and exact such that it is very clear to the seller.

Types of Purchase Orders:

Here are the main types of purchase orders that can streamline procurement and enhance efficiency:

A standard purchase order is the most commonly used PO, ideal for one-time, well-defined purchases of goods or services. 

A Blanket Purchase Order (Blanket PO) is a long-term agreement between a buyer and a supplier to provide goods or services at predetermined prices regularly over a specified period. Here despite issuing multiple purchase orders for each transaction, it streamlines the procurement process by covering multiple deliveries under a single PO number.

Standing Purchase Order (Standing PO) is similar but typically used for ongoing, indefinite needs without a fixed end date or total quantity. It is often used for services or supplies that are needed continuously.

A Planned Purchase Order (PPO) is used for purchases that are anticipated in advance but are not yet scheduled for delivery. It specifies the projected quantities and estimated timing of orders based on future requirements.

Documenting business deals is vital no matter whether from the buyer’s end or from the client’s end. So, now let’s figure out what elements are included in a purchase order to make your documentation flawless.

What is the information that should be included in a Purchase Order?

By now, you have already understood that a purchase order is issued by the customer or the client. It is more of a request made to the company or the business enterprise to provide a specific product or service. Let’s check what information is available in a purchase order.

• Name of the requester
• Name of the approver
• PO Number
• Product or service name
• Quantity
• Price
• Product delivery date
• Payment deadlines
• Tax information
• Terms and conditions

All the above data are essentially found in a purchase order. This document helps the seller to have a clear idea of the buyer’s requirements.

Understanding the PO number meaning would be of great help in recognizing the other aspects of this unique number.

What is a PO Number?

PO number or a purchase order number is a unique number assigned to the purchase order form and is generally found at the top of the form. Purchase order consists of all the product and service details that the buyer wishes to purchase. This number is referred to throughout the transaction and even in the future. Moreover, this number is also mentioned in the invoice and helps to authenticate the transaction for legal purposes as well.

But has it ever crossed your mind what is the significance of this number? Here’s your answer!

PO Number Example

At the top, you’ll find the contact details for both the buyer and the supplier, along with the PO number and date. Below this, there is typically a table listing the products, their quantities, descriptions, and prices in separate columns. At the bottom of the purchase order, you will see the total order amount, total price, and any additional order or payment terms, concluding with an authorized signature.

How does Purchase Order Work?

This is a legal document that buyers send to sellers for authorized purchase. Here are the steps involved in the PO process. 

1. Buyers identify the requirement of goods or services.
2. They create purchase requisitions that are approved by the relevant authority within the organization. 
3. Select a supplier or vendor based on quotes offered and negotiating terms.
4. Draft a purchase order document detailing items, quantities, agreed prices, date of delivery, and payment terms.
5. Send the PO  to the suppliers and wait for their acknowledgment.
6. The supplier prepares to deliver the services or goods requested in the PO.
7. Suppliers send the invoice based on the PO.
8. Once the invoice is verified with the Purchase order, the buyer initiates the payment.
9. Both parties keep records of PO, invoicing, and delivery for further reference. 

Importance of a PO Number

A purchase order is issued by the purchaser and an invoice by the seller. But no matter which side you are on, you would need a purchase order form. This form consists of the PO number that helps make your order-tracking process faster and easier. If at any point of time in the future you need to enquire about an issue with a several months old purchase order, you can refer to the PO number to track the purchase order form or invoice.

The PO number is mentioned in the invoice which helps to refer to the PO form. Moreover, the PO number avoids the chances of various accounting errors, incorrect filling of information, and duplicate payments. Ensuring excellent service and professionalism, which are essential to maintaining the financial health of your business.

Key Benefits Of Purchase Order Number: 

Streamline management and tracking: PO numbers help freelancers and small businesses keep track of tasks, deliverables, and expenses related to each specific job and project, ensuring nothing is overlooked.

Easy expense tracking: PO number helps to track and monitor expenses, additionally simplifies the payment process, ensuring clarity and speeding up payments.

Improve client and supplier relations:  PO numbers show a level of professionalism and organization thus building trust and confidence with both clients and suppliers.

Minimize error and enhance accountability: PO numbers reduce the likelihood of errors and ensure accuracy in order processing and transactions. Thus it is easier to resolve disputes and maintain accountability.

A purchase order is a financial document that is also referred to while generating an invoice. So, considering its importance there must be a particular way of creating it. Here it is!

How is a PO number created?

A purchase order number is created at the buyer’s end. One can generate or assign numbers to their orders to keep track of each transaction.

Various accounting software is available that can assign a number and automatically create a field for putting this number in the purchase order form. This saves a lot of your time and effort and eases up your job.

PO Numbering System

Creating a consistent and clear format for your PO numbers is essential. Assign numbers in a simple, consecutive order such as 001, 002, 003, and so on incorporated with the date ex. PO-010724-001.

There are two approaches to creating a PO number.

Manual:

If you are running a small business and have a few purchase orders to deal with then you can go for manually generating PO numbers. You can use a mix of letters, numbers, and dashes to create a PO number.

For example, you can add the numbers to the ‘PO’ and create it this way: PO 0001 and go sequentially upward for numbering other PO forms. You can even add the date of generating the PO number like PO 06052021-0001. This will help to remember the date of the PO issued as well. Whichever you do, it should make sense

Automatic:

If the number of purchases increases then it is better to automate the process, as a manual approach would be time-consuming and tedious. You can take the help of any cloud-based accounting software that generates PO numbers automatically. This software will also simplify the entire process of purchase and will keep track of every order placed.

Both a PO and an Invoice are crucial for business. Here’s how these both work!

How do a purchase order and an invoice work?

A purchase order is issued by the client that mentions the specifics of a particular product or service. With the approval of both parties, it becomes a legally binding document.

On the other hand, an invoice is created by the seller after the sell-out of the product or finishing the project. This financial document ensures that the project is completed on mutual terms. The invoice also legally binds both the seller and the buyer. The only difference is that after the receipt of the invoice copy the buyer must turn up with the payment before the mentioned due date.

Difference between a purchase order and an invoice number?

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Related article – Difference Between Purchase Order and Invoice

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So depending upon the type of PO there are two main types of invoices. Take a look!

What are PO invoices and Non-PO Invoices?

Lastly, as we have understood the theory of a purchase order number, let’s discuss PO and Non-PO invoices. The basic difference between the above-mentioned terms is that the first one consists of a PO number, whereas the latter one does not.

PO invoice holds a specific PO number that was mentioned initially in the purchase order. However, a Non-PO invoice doesn’t have that as a purchase order was not created for a specific transaction. There are some cases where a purchase order may not be generated.

1. In case of urgent deliveries, a transaction may proceed without a purchase order. In such cases, the invoice generated wouldn’t have the PO number and is considered a Non-PO invoice.
2. Company policies vary a lot and some companies may not issue a purchase order for every transaction. Only those transactions that exceed a particular figure of a dollar are entitled to have a purchase order.
3. Lastly, small business enterprises may not have enough resources to generate a purchase order. Hence, in that case, the invoice created would be a Non-PO invoice.

Some frequently asked questions related to PO Number

Bottom line!

The PO number is a significant number that ensures that a specific transaction happens between two parties with their mutual consent. With Billbooks invoicing software you can ease up all your financial documentation. Save your pocket and time and get this software now!