What Is PO Number?
If you have to supply goods to companies with organized accounting departments, there is a high likelihood that you will be regularly juggling between purchase orders and regular invoices. To enjoy a seamless relationship with such clients, you need to understand what these documents are all about.
Below, we’ll cover:
- What Is A Purchase Order Number?
- Why Are PO Numbers Important?
- How Do Purchase Orders and Invoices Work?
- What Are P.O. Invoice and Non-P.O. Invoice?
- How to Create a P.O. Number?
- What Should Be Included on a Purchase Order?
What Is A Purchase Order Number?
A purchase order number also known as a po number is a unique number assigned to a purchase order. Purchase order numbers to purchase orders are what invoice numbers are to invoices. With a po number, vendors and buyers can reference the orders they either sent out or received.
Ideally, all purchase orders must bear a purchase order number. Using this number, buyers can match what they ordered for against what was shipped to them.
This number can be generated manually using the sequential numbering system or via an invoicing accounting software.
Why Are PO Numbers Important?
In a perfect world, a customer who makes an order for some goods should get their deliveries on time and without errors as well as pay the vendor on time. But is that always the case? No.
That’s where a po number comes in. In addition to ensuring that an invoice is processed on time, it reduces incidences of incorrect payments.
It also compares the order inventory to the inventory shipped to ensure that there are no errors in the shipment.
For small businesses, using a po number system with good credit management policies can help maintain cash flow.
In summary, here are some of the most important reasons why companies use purchase orders and po numbers
- They provide legal protection for both parties if a dispute over shipment should arise
- They make it easier to track orders
- Minimizes the risk of having audit problems
How Do Purchase Orders and Invoices Work?
A purchase order is usually drafted and issued by the buyer of a product who wants to confirm that they got exactly what was ordered.
It is issued at the start of the transaction and typically contains the sale particulars including the products or services required, the agreed prices and when the order is expected to arrive. It is considered legally binding since it is signed by both the buyer and the seller.
Unlike a purchase order, it is the vendor or seller who issues an invoice. An invoice is only issued after all the terms outlined in the purchase order has been fulfilled by the buyer.
Just like the purchase order, it itemizes the products and services provided with a brief description of each of them, and highlights their individual costs and quantities.
For reference purposes, the vendor should include the po number entered on the original purchase order. This is done to show that the transaction had been pre-approved. The buyer is expected to honor the contents of the invoice upon receipt.
In summary, here are the differences between purchase order and invoice
- A purchase order is created by the buyer while an invoice is created by the seller
- A purchase order confirms an order while an invoice requests for payment
- While an invoice is generated after purchase, a purchase order is generated before purchase
- A purchase invoice defines the terms of transaction while an invoice confirms these terms.
What Are P.O. Invoice and Non-P.O. Invoice?
A po invoice is a document that contains the purchase order number and the details of the transaction between the buyer and the seller as agreed between both parties. Purchase order invoices are usually recorded under accounts payable and matched against the purchase order to see if they correspond. It is mostly used for direct purchases.
A non-po invoice on the other hand is used when the purchase order is not a must for the transaction the buyer is being billed for. It is also known as an expense invoice and is used for indirect purchases.
Purchase orders may not be generated in the following cases:
- Where the transaction is below the dollar limit for drafting a purchase order
- The business client does not have a proper accounting office in place
- The transaction was done so hurriedly that the customer did not have time to issue one
How to Create a P.O. Number?
One of the easiest ways of creating a purchase order number is downloading a free customizable purchase order template and assigning po numbers to each order. This is a viable and cost-effective numbering system for small businesses.
This number can be assigned to each purchase order form using the sequential numbering system.
For large corporations with many departments, an accounting software solution may be the best bet. Though pricey, it can help save a lot of time and effort.
These accounting software are programmed to automatically generate fields within which purchase order information can be entered. They also automatically assign unique numbers to each purchase order.
What Should Be Included on a Purchase Order?
For a purchase order to serve its purpose, it must contain all of the following information
- Purchase order number
- Vendor contact information
- Client contact information
- Description of goods and services provided
- Quantity of products delivered
- Price of goods
- Tax information
- Special notes
Purchase orders can be used as an extra layer of protection from fraud. It is a vendor’s proof that the client authorized the purchase of a product in certain quantities, at a specified price and binded by a set of terms. Drafting one is easy if you have a purchase order invoice template. WeInvoice has several in stock for you, all for free. You may also choose to tinker with its amazing invoice generator to develop a custom one for your business.