Whenever you order goods from a supplier, you’ll hear the same question from the sales rep:
“Do you have a purchase order number for that one?”
You’ve probably been asked for a PO number so many times that you’re wondering if its something you should be doing.
While it’s not necessary for every organization, using purchase order numbers is considered a best practice, even for small businesses.
This article is here to help you understand why.
Think of it as your 101 guide to PO numbers. We’ll discuss what purchase order numbers are, why they are important when they are generated, and what role they plan in procurement and accounts payable processes.
What is a purchase order number?
To answer this question, let’s take a step back and ask: What is a purchase order?
A purchase order is a legally binding document that a buyer sends to a seller in order to formally request to purchase goods.
In other words, it’s a document that says, “Hey, we want to buy this from you.”
The purchase order includes a list of the items the buyer wishes to purchase, quantities, any previously agreed-upon pricing, and, of course, the purchase order number.
Which brings us to the original question:
What is a purchase order number?
The purchase order number is a unique number that is assigned to the purchase order to make it easy to recall and find in the purchase order system or other financial management tool.
It serves a similar purpose to the invoice number on an invoice, acting as a unique identifier. No other purchase order will have the same PO number.
Why are PO numbers important?
Purchase order numbers play an important role in procurement, invoicing, and accounts payable.
When you create a purchase order, you’re creating a legally binding document, an official request to purchase from a supplier.
This formalizes the sales conversation you’ve likely already had with your vendor and creates a paper trail.
The company you purchase from will, in turn, use that PO number as a reference number on your invoice when they send it. This helps with invoice verification and matching.
Before making payment for the goods or services received, your accounts payable team will check the invoice off against the original purchase order (using the PO number quoted to find it), ensuring that what you ordered originally is what you’re paying for.
This helps prevent invoice fraud, such as a fake invoice being sent from a made-up supplier. It also provides an opportunity to catch mistakes, such as a vendor billing you for 1,000 units when you only ordered 100.
Components of a PO number
A PO number itself doesn’t typically have components. It’s just a number.
That said, some companies do use more complex numbering systems to better track spending by category. For example, you might use:
- P-coded PO numbers (e.g., P234345) for purchase orders created by the procurement team
- O-coded PO numbers (e.g., O239087) for purchase orders created by the office team
- L-coded PO numbers (e.g., L352903) for purchase orders created by the company leadership
The purchase order document itself contains much more information. Here’s what you’ll typically find on a purchase order:
- The date the PO was created
- The PO number
- Vendor contact info (such as the company name and address)
- Buyer contact info (such as the company name and address)
- The name of the person who created the purchase order
- The goods or services you’d like to purchase, including specific item names
- The quantity of each product you’re requested
- The price you expect to pay, assuming you have discussed pricing previously or have a contractual agreement
- Any special notes or details, such as an expected delivery date
When is a PO number generated?
The PO number is generated when the purchase order itself is created, which you’ll do in order to formally request goods or services from a supplier.
In some cases, you’ll have already discussed your desire to purchase with the supplier, as you may have confirmed the availability of goods or negotiated pricing.
This isn’t always the case, though. For goods you purchase on a regular basis — office suppliers, for example — you’ll just send the PO over to your supplier via email when you need to replenish stocks.
Role of the PO number in invoice processing
From the perspective of invoice processing, the primary role of the purchase order number is to aid in the invoice matching process.
When your business receives an invoice, it needs a way of verifying that the invoice is legitimate. That is, the invoice is from a real vendor and relates to goods or services actually ordered and received (or to be received, in some cases).
Matching the invoice against a PO in your purchase order system is the first and most important (and sometimes only) step in this matching process.
When an AP team member receives an invoice, they locate the PO number included, find that purchase order in the PO system, and confirm that the goods, quantities, and prices billed for match across the two documents.
Then, the invoice can be cleared for payment.
How to create a PO numbering system
Purchase order numbers are just sequential numbers.
So, at the simplest level, you can just start at 1 and continue counting from there. You may, however, wish to set up a spreadsheet with links to each PO document so you can locate the purchase order easily when completing your invoice matching process.
You can get a little more complex here using an alphanumeric coding system (SXXXX for sales POs, MXXX for marketing POs, etc.) to more easily classify purchase order numbers.
A better practice, however, is to use a purchase order system. This can be a standalone tool, though you’ll often find helpful PO systems built right into your financial operations platform like BILL.
Manage purchase order numbers in BILL
BILL makes purchase order management easy.
Your procurement team can easily create purchase orders and generate PO numbers in our billing management software.
Then, with our automated three-way matching feature, your AP team can quickly confirm that invoices match the original purchase orders before clearing them for payment.
Get started for free with BILL today.
FAQ
Where to include a PO number on an invoice
When creating an invoice, the customer’s PO number should be entered in a field called Purchase Order Number, Reference Number, or any similar field.
Who issues the PO number?
The buyer is the party responsible for issuing the purchase order number. In particular, the person who creates the purchase order itself will automatically generate a PO number.
Internally, this depends on your company’s purchasing policy. It may be any individual who has the authority to create a purchase order, or this may be solely the responsibility of a procurement team member.
How many digits are in a PO number?
There is no hard and fast rule when it comes to how many digits must be in a purchase order number.
A good practice is to keep the PO number as short as possible, as this helps prevent mistakes and typos.
Is a PO number the same as an invoice number?
No, the PO number is not the same as the invoice number.
The PO number is a unique number used to identify and locate the purchase order, a document created by the buyer and sent to the seller to request goods or services.
The invoice number, on the other hand, serves the same purpose, but for the invoice, the document created by the seller and sent to the buyer to request payment for goods or services provided.
