What Is a P.O. Number on an Invoice?

July 1, 2022 by Invoice Simple
What is a P.O. Number

As an independent contractor or freelance business owner, keeping track of your sales is essential. Without organized records, it’s difficult to find order details quickly and easily in case of issues, an audit, or for tax purposes. A purchase order number (P.O. number) is a helpful way to add organization to your company’s record-keeping system.

In this article, we’ll define what a P.O. number is, discuss why it is useful, and explore how to generate unique, systematized numbers in a way that best serves your needs.

What Is a P.O. Number?

A P.O. number is a unique, identifying string of numbers and letters assigned to a specific purchase order. It ensures both the buyer and vendor can track the orders they’ve submitted or received. When a vendor receives a purchase order, it becomes a legally binding document.

Let’s explore the P.O. number meaning in context. Purchase orders sent by buyers to vendors to signify an intent to purchase goods or services. These documents outline the order’s details, including the following:

  • P.O. number
  • Order date
  • Description of the products or services
  • Quantity of the products or services
  • Payment terms (payment forms accepted, when payment is due, etc.)
  • Contact information for the buyer and seller

In addition to the purchase order’s legal significance, it also helps contractors, freelancers and businesses keep efficient records of all orders. An organized numbering system allows for quick and easy order tracking and gives accountants a fast way to reference purchases for tax purposes.

Why Are P.O. Numbers Important?

P.O. numbers are a useful element of the purchase order document for both yourself and your clients. Here’s why:

  • Unique P.O. numbers allow both you and your clients to track the order’s progress quickly and with accuracy.
  • If a client has an issue with their order, they can reference their P.O. number. This allows you or your customer service team to promptly find the corresponding order information, making conflict resolution faster and easier.
  • P.O. numbers prevent duplicate payments and other accounting mistakes. If you accidentally bill a client twice for one order, your business’s reputation may take a hit. Even if your client forgives your mistake, resolving these types of errors costs time and money.

Is a P.O. Number the Same as an Invoice Number?

No. A P.O. number is not the same as an invoice number.

Both P.O. numbers and invoice numbers are unique identifying codes that allow sellers and buyers to identify specific documents. However, a P.O. number is allocated to a purchase order, and an invoice number is assigned to the invoice.

An invoice number rarely appears on a purchase order. However, an invoice may include a purchase order number. This practice ensures the invoice corresponds to the correct order.

P.O. Number Examples

What does a P.O. number look like, and how are they used? There is no one-size-fits-all system for creating and using P.O. numbers.

Convenience is key to getting the most benefit from your P.O. numbering system. Typically, P.O. numbers are positioned at the top of purchase order documents. Often, they will sit on the top right-hand side of the page above or below the date. However, this varies according to the purchase order template you are using.

The code itself can contain numbers, letters, and dashes. There is no right or wrong way to arrange and organize your P.O. numbers, as long as it makes sense to you and your team. For example, many businesses use a sequential numbering system:

  • 0001
  • 0002
  • 0003

To eliminate the risk of confusion, ‘P.O.’ may be included:

  • PO0001
  • PO0002
  • PO0003

If other details are important to your business, you can generate a system that includes them in your purchase order number, organized using dashes. For example, you might include the date:

  • For a purchase made on December 12, 2021, the P.O. number might be PO 121221-0001.
  • For a purchase made on May 29, 2022, the P.O. number might be PO 052922-0023.

Regardless of the system you choose, P.O. numbers can be used in various scenarios. Here are some examples:

  • You can reference P.O. numbers throughout your approval process if you have one. This enables you and your team to keep track of the order throughout each stage and make amendments if approval is not granted right away.
  • If you are audited in the future, you can use your P.O. numbers to trace an order’s trail and collate the required tax information.
  • If a client cancels an order, you can use the P.O. number to ensure the order is voided at all touchpoints. This prevents a vendor from supplying you with an unneeded product and ensures every team member knows not to bill the client, send follow-up emails, or provide post-purchase service.
  • P.O. numbers help to protect the integrity of your accounting data. While data integrity is crucial for tax purposes, that’s not the only benefit. Accurate data allows you to formulate meaningful insights, such as business growth and customer concentration. You can use this information to engineer data-backed strategies that propel your business to the next level.

How to Create a Purchase Order Number

You can create a purchase order number in one of two ways: manually or automatically.

How to Create a Purchase Order Number Manually

Smaller businesses, freelancers, and contractors with fewer purchase orders may prefer the flexibility of manually creating P.O. numbers. A hands-on approach allows you to create a system that meets your business’s specific needs.

As discussed above, you can generate a P.O. number system sequentially (e.g., 0001, 0002, 0003, etc.), with the label ‘P.O.’ (e.g., PO0001, PO0002, PO0003, etc.), or using identifying information, such as the date (e.g., PO 121221-0001 for a purchase made December 12, 2021) or the customer’s name (e.g., PO AB-0001 for a purchase made by Alice Baker).

Whichever manual system you decide on, follow these two rules:

  • Stick with your system. A P.O. numbering system is not effective if it’s not consistent. If you choose to include the date, continue doing so for every subsequent order.
  • Record more than the P.O. number. You should write down the order and buyer details, as you may need this information for future reference.

How to Create a Purchase Order Number Automatically

Larger businesses or freelancers and contractors that deal with significant numbers of orders may benefit from an automatic P.O. number system. If the idea of manually assigning a unique and systemized code to every order sounds tedious or near impossible, an automatic generator may be the answer.

Many cloud-based accounting systems include a P.O. number generator that allocates a unique code to every order with zero manual intervention.

Wrapping Up

Now that you have a better understanding of P.O. numbers, it’s important to use them to keep track of your orders. While it may seem like an extra step in your workflow, an organized system of P.O. numbers will prove invaluable throughout your accounting processes. It reduces the risk of data errors and allows the buyer to track the progress of their purchase, ultimately paving the way for an exceptional customer experience.

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