What is a PO number? (Purchase Order number)

Keeping a reliable paper trail is crucial when engaging in business transactions with customers, suppliers or clients. Not only does keeping records make sorting out your finances easier, it also ensures clarity and alignment among all parties. And that's where PO numbers (‘purchase order numbers’) come into play. 

In this article, we'll break down what PO numbers are, why they matter, how to create purchase order numbers and how to add them to your invoices.

What is a PO number? 

A PO number, short for purchase order number, is a unique identifier assigned to a specific transaction, confirming a customer’s intent to purchase and exactly what they’ll get for their money. PO numbers are typically alphanumeric and can include a combination of letters, numbers or both. 

A PO number is linked to a purchase order document, a legally binding commercial document which details exactly what goods or services the provider will buy to the seller, the quantity needed and at what price. 

PO numbers are sometimes called PO tracking numbers because they help both parties keep tabs on how the order is progressing.

How do PO numbers work?

As soon as a transaction has been agreed, the buyer issues the purchase order to the seller, detailing the types, quantities and agreed-upon prices of products or services to be provided. It’s essential that every business selling goods or services provides a separate PO number for each transaction - so it’s as easy to keep track of payments to international suppliers like Alibaba as it is to manage payments to domestic suppliers as a small UK business.

The PO number listed on this document then serves as a reference point, allowing both parties to track and manage the order effectively from start to end of the transaction. By referencing the PO number, both the buyer and the seller can easily locate and track the order's progress, from initial placement to fulfilment and payment.

What is a PO number on an invoice?

A PO number should always appear on the payment invoice for that transaction. It should be easily visible at the top of the invoice, to allow anyone handling the document and making the payment to quickly identify the order. 

Note that while an initial purchase order document may sometimes be referred to as a ‘PO number invoice’, it is not the same thing as an invoice. As we touched on earlier, the buyer provides a purchase order document to the seller at the beginning of the transaction, while the invoice is a request for payment that comes at the end of the process. 

Why are PO numbers important?

PO numbers play a key role in streamlining procurement operations, and making sure both parties involved in a transaction can feel safe, confident and legally protected. 

PO numbers can help with:

1. Organisation and documentation: Assigning a unique identifier to each order makes it easy for you to keep your records up to date, and lets you access information about their transactions quickly whenever you need to. It’s also easier to keep track of your inventory when you know exactly what has been ordered and what you need to deliver.

2. Tracking and accountability: PO numbers enable accurate tracking of orders throughout the procurement lifecycle. They allow buyers, sellers, and other stakeholders to monitor the status, delivery, and fulfilment of purchase orders. This tracking capability boosts accountability and minimises the risk of any errors or miscommunications.

3. Invoice matching: The PO number acts as an important reference for reconciling invoices with purchase orders. By cross-referencing the PO number on an invoice, you can ensure that the charges align with the previously agreed terms and quantities specified in the purchase order, making sure that there are no invoicing discrepancies and that everyone stays true to their word.

4. Payment processing: PO numbers streamline the payment process by providing a unique identifier that facilitates prompt payment. Accounts payable departments can quickly identify the purchase order associated with an invoice, helping to speed up payments to suppliers and avoid any delays.

How to create a PO number

Creating a PO number to add to your purchase order document and invoice is fairly straightforward:

1. Implement a standardised purchase order system within your organisation: This system should define the process for creating and assigning PO numbers. If it’s your first time creating a purchase order number, you can simply start at 1 and count upwards, so your PO numbers will be listed as PO001, PO002, PO003, and so on. Note that every separate transaction will need a separate PO number (even if a customer is ordering the same goods every month), although it is possible to create one PO number for a ‘bundle’ of goods. 

2. Generate PO numbers using accounting software: Even more easily, you can use a purchase order management software or internal system to generate unique PO numbers automatically. These systems often include configurable settings to customise the format or structure of the PO numbers according to your preferences.

3. Share your PO number with your buyer: Once you’ve decided on your purchase order number, share it with the other parties involved in the transaction. This step is essential for clear communication and accurate tracking throughout the procurement process.

4. Use your PO number to track and manage your orders: You can now use your PO number to keep track of the progress of the purchase order. Update the order's status as it moves through various stages, from confirmation to fulfilment to payment. This tracking will help you ensure that the order is progressing smoothly and address any issues that may have come up.

With leading accounting software such as Xero, Sage and FreshBooks, you can add PO numbers to each invoice and automate payment collection using Crezco to streamline the process even further. When you use Crezco to collect both domestic and international payments, you’ll also receive notifications when the invoice has been received, paid and arrived in your account, making it even easier to keep track of how the transaction is progressing. 

Final thoughts

With a well-implemented purchase order number system, businesses can efficiently manage their procurement operations, reconcile invoices, and make sure they get paid in full and on time. 

Creating and using PO numbers is simple and easy, and lets you and your buyers rest assured that you’ve both got a deal you can rely on. Good luck and happy invoicing!