Everything You Need to Know About Purchase Orders and PO Numbers

December 30, 2022
Procurement Management

If you are running a business - big or small -  a lot of documentation comes with it. It might seem like a hassle sometimes, but it is important to make sure your customers, suppliers, vendor, delivery agents, etc., are on the same page as you.

Proper documentation allows all the parties involved to be in sync with each other and complete any given task at hand seamlessly.  

Imagine you run a café of your own, and one morning you reach your kitchen to find out you are out of bread. You ask your employees if you have some bread in the storage refrigerator at the back. Upon checking, you realize the bread supply was not restocked because of the new order you placed at the local bakery was never delivered.

You call the local bakery to check, and to your surprise, they say they never received an order. However, you clearly remember placing the order one week ago and processing the payment. Now, how do you prove this to the bakery? This is where purchase orders and PO numbers come into the picture.

When you placed the order, you made the purchase order, signed it, and sent it to the bakery. The bakery owner signed the purchase order as well and sent it back. Now all you have to do is send the PO number to the bakery owner’s daughter so that she can check the purchase order he approved in her absence.

What would you have done if you did not have the purchase order and the PO number? You and the bakery owner’s daughter would have been in an endless tussle to prove whether the order was made or not. The purchase order allowed both parties to maintain a smooth workflow and transparent communication after a slight hiccup.

So, if you are running a business, company, or enterprise, give utmost importance to making purchase orders. If you are new to the business world and purchase orders, PO numbers, invoices, etc., confuse you, do not worry.

We will explain everything about purchase orders and PO numbers in detail, allowing you to make informed choices and decisions while running your business.

What is a Purchase Order?

A purchase order can be understood as a legally binding document for the buyer as well as the seller. The intentions of the seller to sell the mentioned products/services, whereas the intention of the buyer to purchase the required products/services is made clear in the purchase order.

The procurement department or business management department is responsible for drafting purchase orders. However, a purchase order should not be confused with an invoice. Both are legally binding documents, but they are created at different times of the buying process.

While a purchase order is created before the purchase is made, an invoice is generated to confirm payment and product delivery. Another major difference between a purchase order and an invoice is that a purchase order is created by the buyer, whereas an invoice is created by the seller.

Details usually included in a purchase order are as follows:

  • Date of the order placement
  • Delivery date
  • Quantity
  • Other specifics like color, size, height, weight (if any)
  • Payment terms and conditions
  • Payment method
  • Contact information of the buyer and seller
  • Delivery partner details (if any)
  • Unique identification PO number

What is a PO Number?

It is important to ensure that each detail mentioned in the purchase order is accurate to avoid confusion and miscommunication later.

As a business owner and buyer, you must generate multiple purchase orders each month. How do you keep track of all the purchases separately and tally their specifics when required?

The PO number, i.e., the purchase order number mentioned on each purchase order, allows both buyer and seller to identify each purchase and maintain their accounts smoothly.

How each business creates its PO numbers depends on various factors like the size and type of the company.

Smaller companies have the liberty of creating their PO number template and using it for each purchase. However, large businesses and more established enterprises might not find it practical and feasible to create their PO numbering system.

Depending on the template each business or enterprise uses, the PO number can be mentioned anywhere on the purchase order. Usually, it is placed at the top of the purchase order keeping in mind the ease of being able to find it.

PO numbers are also mentioned on the invoice, allowing the buyer and seller to cross-reference the purchase order and invoice.

The need for cross-referencing might arise during the accounting process or unprecedented events like wrong delivery of products, payment issues, etc.

How to Create a PO Numbering System

Depending on the size of your business/enterprise, you can use one of the two PO numbering systems to create a PO number:

  • A manual PO numbering system
  • An automatic PO numbering system

Manual PO Numbering System

For small business owners, manual PO numbering can work the best as they have comparatively few purchase orders to take care of. You can create PO numbers consisting of alphabets, numbers, dashes, etc.

It is recommended to mention the date when the purchase order was made in the PO number for convenience. The date can be incorporated in the PO number in a variety of formats like date followed by other numerals or alphabets or vice versa.

For instance, the PO number for a purchase order created on 28 September 2022 can be something like 28092022-0001 or 0001-20220928. The 0001 can represent the number and position of the purchase order in a series.

However, make sure you follow the same format of writing the PO number in each purchase order. Any discrepancies in the PO number can confuse you and the seller in the future.

It is also recommended to maintain an excel sheet of all the purchase orders. In the excel sheet, the PO number can be written next to the date it was generated on.

You can also write other details in the excel sheet for convenience, like the seller’s name and other details, the amount paid, the quantity of the purchase, etc.

In an automatic PO numbering system, you will be saved from this work as the numbering system will automatically take care of everything.

Automatic PO Numbering System

Large companies and enterprises have multiple orders at a time, making it difficult for them to generate their PO numbers manually. This is when they take the help of an automatic PO numbering system.

Numerous accounting and invoicing systems are available online for PO number creation. Some advanced PO numbering systems also provide customizing options, allowing you to choose the format of the PO number.

An automatic PO numbering system not only saves time but also greatly reduces any chances of error. In case of technical difficulties and downtime, the customer services team of these accounting systems can be contacted for resolution.

Additionally, an effective and advanced PO numbering system will not only allow you to take care of purchase orders but also invoices, both PO invoices and non-PO invoices.

What are PO Invoices and Non-PO Invoices?

A PO invoice refers to an invoice that is made about a purchase order. The PO number will be mentioned on the invoice and vice versa. However, it is important to note that the PO number and invoice number are not the same.

A non-PO invoice refers to an invoice made independent of the purchase order or for an order with no purchase order. Sometimes businesses put forward purchase requests without making a purchase order.

This is usually seen when the buyer and seller have been in business with each other for very long and share a long-standing relationship. Other times, some businesses rely on invoices and do not generate purchase orders at all.

Sometimes businesses skip generating a purchase order and PO number when the amount is relatively small and does not cross the budget threshold determined by the company.

Advantages of Using a PO Number

Here are some more advantages of using a PO number while generating purchase orders:

  • It is a legally binding document. In case of unfortunate events or payment failure, both parties can refer to the purchase order to fix the problem and take adequate action.
  • Each business, big or small, follows an auditing process. Purchase orders and PO numbers make the auditing process easier, quicker, and smoother.
  • PO numbers work as a great reference within the company, allowing all the employees to cross-examine information independently as and when required.
  • Tracking payments is also much easier with PO numbers as it contains information like the amount paid, the amount due, advance, if any, etc.
  • PO numbers and purchase orders also ease the process of tracking inventory.

How Hubler Can Help With Your POs

If you are looking to get your hands on a robust and trustworthy no-code accounting system for generating purchase orders and PO numbers, Hubler can help you with this.

You can also benefit from the various other features like budget management, workflow management, reporting, and analytics, etc., to manage your accounts better.

Check out Hubler now and get in touch with our team to get started.

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