Purchase order number
Even a small business buys a lot of goods and services each year. In the business to business sales space, companies usually issue a purchase order for each item they purchase. It is issued by the buyer to the supplier, and creates a binding contract that stipulates the type and quantity of goods purchased, a price, payment terms, and other details.
However, keeping track of each purchase order is difficult without a purchase order number. This is a unique identifier for each document issued. Sometimes the PO number is simply sequential so that the first one issued is #1, and the next #2 and so on. However, other companies use different numbering schemes. For example, the PO number might specify a vendor first, using a numeric code. Then the next digits could be sequential.
How is a purchase order number helpful?
Arguably, the best benefit of a purchase order number is that it helps with accounts payable. For instance, the invoice sent with goods by the seller will usually include the PO number along with the invoice number. This way, both purchasing and accounts payable can track the order and issue appropriate payment.
Another benefit of these numbers is that you can match the number to each purchase requisition. In other words, it becomes obvious which department ordered the items and, therefore, which budget to debit from. You can also track inventory using the PO number in your purchasing software.
Finally, the purchase orders can help a seller with invoicing. That’s because it tells them at a glance what the purchaser is paying for their products, and how many they’ve agreed to sell. Then, it’s much easier to ensure accuracy with both quantities and prices.
Key Components of a PO Number
A PO (Purchase Order) number typically consists of several key components that help identify and track specific orders. Understanding these components ensures clarity and effective communication in business transactions.
1. Prefix or Identifier Code
Many companies include a prefix, such as "PO," to clearly mark the document as a purchase order. This is often followed by a unique identifier or code that differentiates various types of orders or departments within the organization.
2. Unique Numeric or Alphanumeric Sequence
This is the core of the PO number, a unique sequence of numbers (or a combination of letters and numbers) assigned to each order. It distinguishes one purchase order from another and helps with order tracking and referencing.
3. Date or Year Code
Some PO numbers include a date or year code to indicate when the order was placed. This helps identify the timeframe of the order, making it easier to organize and track purchases over time.
4. Department or Location Code
In larger organizations, PO numbers may include a department or location code to specify the business unit or geographic area making the purchase. This helps allocate costs and track orders by department.
5. Sequential Numbering
For larger companies, sequential numbering is often used to ensure that each PO number is unique and follows a logical order, making it easier to manage and trace orders.
Common Misconceptions About PO Numbers
PO Numbers and Invoice Numbers Are Interchangeable
Many believe PO numbers and invoice numbers serve the same purpose, but they differ significantly. PO numbers authorize a purchase and reference order details, while invoice numbers request payment for delivered goods or services. Confusing the two can lead to documentation errors and payment delays.
PO Numbers Can Be Reused
Reusing PO numbers for different transactions can create tracking issues and overlapping records. Each PO number should be unique to ensure accurate transaction referencing and account reconciliation.
PO Numbers Aren’t Needed for Small Transactions
Some think PO numbers are only for large purchases, but they also improve clarity and accountability in smaller transactions, reducing the risk of errors and miscommunication.
PO Numbers Don’t Impact Financial Accuracy
Unique PO numbers play a key role in preventing duplicate payments and ensuring accurate financial records, streamlining audits and payment processes.
Understanding these misconceptions helps businesses maintain clear, efficient, and accurate financial practices.
