What is a PO Number, and Why is it Important?
January 07, 2023
If you’re a business owner and deal with a lot of transactions, chances are you’re no stranger to PO numbers. These are unique codes that serve as document identifiers and are found on most invoices and purchase orders.
The question arises—how do you create a PO number, where is it placed, and why should you care about it? If you want to find the answers to all these questions, keep reading this easy-to-follow article! We’ll break down PO numbers for you, show you how to make them, and teach you how to use an invoice generator.
Let’s dive straight into it!
What is a PO Number?
A PO, or purchase order number, is assigned to a purchase order form and referenced throughout the transaction process, both by the seller and the buyer. It’s a unique number that acts as the official confirmation of the buyer’s intent to purchase something from the seller.
But what is a purchase order form? It’s a document that’s sent to vendors of items or sellers of services by buyers who intend to purchase their products or services. Once the vendor approves the transaction, the purchase order becomes a legally binding document.
Typically, a purchase order form includes the following:
- Unique PO number
- Date of the order
- Breakdown of the goods or services
- Requested quantities
- Pricing and payment terms
- Buyer and seller contact information
Do You Have to Create a Purchase Order for Every Transaction?
You don’t have to create a purchase order for every transaction, as there are some exceptions to the rule. Namely, you don’t need this document if:
- Transactions are below a certain threshold, and the profit from them is so small that you can skip the purchase order
- The total cost of the purchase is initially unknown. For example, advertising companies and lawyers do not need to issue purchase orders
- The order was urgent and needed to be processed quickly, and the customer didn't have time to issue a purchase order on time
- The business that needs your services or products is so small that they don’t have enough resources for a proper purchase order system
Why Is a PO Number Important?
A PO number is super important for administrative purposes, and it:
- Gives you a clear overview of what every client owes you for your goods
- Ensures that both parties agree on the price, making it less likely to come to a dispute
- Helps you manage your inventory and allows you to know what exactly has been ordered
- Prevents any duplicate payments, incorrect filling, and similar accounting errors
- Makes purchases easy to locate, meaning that you can double-check them whenever necessary
A PO number is also crucial for businesses that have to ship their items, as it will be referenced in shipping forms and on other documents associated with the transaction.
Lastly, and most importantly, a PO number also goes on the invoice, which is issued by the seller once the transaction is complete. Similarly to a purchase order, an invoice lists the details of products and services along with their quantities, prices, and payment terms.
How to Create a PO Numbering System
When it comes to creating a PO numbering system, you can either do it manually or use an automatic number generator. We’ll cover both methods in the following section.
Manual PO Numbering System
You can use a manual PO numbering system if you’re a small business owner or an independent contractor who doesn’t have many purchase orders. For this, you can use letters and numbers of your choice, as well as dashes, arranged in a way that makes sense to you as a vendor.
One of the best ways to arrange your PO numbering system is to use a chronological order of numbers. For example, if it’s your first PO number, mark it with 001, then mark the second as 002, and so on. This way, you’ll be able to easily track down the specific pieces of your paperwork later on.
You can also add “PO” in front of the number to make the code stand out or generate the PO number based on the date of the invoice. So, for example, if you’re generating a PO number for an invoice issued on August 20, 2023, it would look something like this: PO 20082023-001.
Automatic Number Generator
Managing your expenses can be difficult when you’re running a bigger business that deals with a lot of purchase orders. In such cases, having to manually add a PO number to purchase orders becomes time-consuming and, most importantly, impractical.
That’s why you should use an automatic number generator. Nowadays, there are countless accounting systems with built-in PO numbering features, but keep in mind that these can be quite costly.
On the other hand, you can also use a basic random number generator and use a sequential numbering order for your invoices. This way, you’ll save some money and time, considering you won’t have to create numbers manually.
Where to Place your PO Number?
Now that you know how to create a PO number, you might be wondering where to place it on an invoice. The most convenient way to do it is to put it at the top of the document, where you can easily see it.
Generally, an invoice starts with your and your client’s information, the date of issuance, and the invoice number. It’s in this section that you should place your PO number.
But how do you create an invoice? The best way to do it is to use a free online generator. It’s super easy to use and doesn’t require much time, unlike programs such as Word or Excel. On top of that, it’s quite efficient and will provide you with a top-notch invoice in a breeze.
Here’s how it works:
- Open the invoice template
- Fill in the empty fields
- Review and download your document
PO Number FAQ
#1. Is a PO number the same as an invoice number?
No, a PO number isn’t the same as an invoice number. Although both numbers are unique, the biggest difference is that the former can be assigned to both purchase orders and invoices, while the latter can only be placed on invoices.
#2. Is a purchase order a legally binding document?
Once the vendor receives the purchase order, accepts it, and signs it along with the other party, the document becomes legally binding.
#3. How do you come up with a PO number?
You can create a PO number either manually by using a chronological system or by using a random number generator.
#4. Where do you place a PO number?
Generally, for convenience, a PO number is placed at the top of the invoice, below the invoice number and customer and seller information.
Key Takeaways
- A PO, or purchase order number, is assigned to a purchase order form and invoices that are referenced through the transaction process and acts as the official confirmation of the transaction.
- A purchase order is a legally binding document sent to vendors of items or sellers of services by buyers who intend to buy their products or services.
- You can create a PO numbering system either manually or by using a random number generator.
- A PO number is placed at the top of the invoice, which you can easily create using free online templates.
Final Thoughts
Although it might seem like a minor detail, a PO number is actually super important for both invoices and purchase orders. Hopefully, this article has painted a clear picture of it and helped you understand it better.
If you need documents other than invoices, feel free to check out what we have to offer. We can generate customized W-2 forms, 1099-MISC forms, and other legal documents, such as pay stubs!
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