PO numbers are a vital piece of information that ensures goods and services are as agreed, prices are correct, and, most importantly, invoices are paid on time.
Specifying the products and services a buyer would like to purchase, it’s important to include as much detail as possible in your purchase order document to ensure the transaction goes through as smoothly as possible.
For all, it is not a legal requirement to produce and issue a purchase order document; this piece of paperwork does come with many benefits, which we’ll explore in more detail in this post.
If you have any questions relating to PO numbers and accounting process best practices, please feel free to ask Direct Route for help.
What is a P.O. number?
A PO number is a unique reference containing both numbers and letters unique to the purchase order a business is raising.
Within the purchase order form, there will also be an outline of the products and services that a business would like to receive from a supplier.
A legally binding document, a purchase order, states what it is you wish to purchase at the price you want to buy it at, with a promise to pay the supplier once the invoice has been submitted.
POs can, in this sense, help to reduce late invoice payments, which can be a lifeline for many businesses.
Ultimately, purchase orders:
- Help to provide a paper trail
- Keep everyone on the same page
- Act as proof if there is a dispute.
How do P.O. and invoices work?
Each purchase order document will have its own unique purchase order number, helping to keep track of orders placed and received.
Once a PO number is raised, it should be referenced throughout the transaction process, i.e., if there is a problem, the order can be found quickly and easily; when the invoice is raised, as it has been pre-approved with the PO number, this should be referenced so prompt payment can be made avoiding late payment of invoices.
PO documents are legally binding and are raised and issued by the buyer, typically after a conversation about the purchase of goods and services. Quantities and prices will be outlined in this document, and both parties must approve the PO to move forward and continue with the transaction.
Note: You can generate your own PO and unique reference, or the right accounting software can do this for you.
What to include on a purchase order document:
- Date the purchase order document was created
- The unique PO number/reference
- Full contact details for both the buyer and the supplier
- Description of the products/services
- Quantity
- Agreed price
- Any special notes
- Delivery dates
- Consequence of invoice not paid, i.e., incur late fees.
The supplier will raise the invoice once the products are shipped and the services are delivered.
The invoice will continue to itemise the product details, quantities, and prices AND must include the purchase order number linked to this specific order. The purchase order number is typically found at the top of the invoice.
Including the PO allows the buyer to check everything and also provides confidence to the supplier that as everything has been pre-approved with a PO reference, the buyer will then pay on the terms that have been pre-agreed to avoid incurring late fees.
PO Invoice vs. non-PO invoice
A PO invoice is where a unique reference/number is stated on the invoice.
A non-PO invoice is where a purchase order has not been created or, in some instances, is not required.
Reasons you might not issue a PO include:
- The order was urgent, meaning there was no time to raise the PO.
- The order didn’t exceed a specific amount, so the order could go through without needing to be pre-approved and a PO raised.
- The business is small with little to no accounting team or software, so no PO was generated.
Benefits of raising a PO
- Helps to reduce errors as you can match the goods you have ordered with what you have received.
- Allows better tracking and management of stock.
- Both parties have a record of what has been ordered.
- Suppliers can keep track of their cash flow and business expenses better.
- Efficient way to manage transactions and ensure prompt payment.
- A PO document means that the transaction has already been pre-approved, so when the invoice is issued, there should be no problems with payment.
- It is a good way for a seller to keep track of sales and keep records organised, allowing suppliers to find orders quickly and easily.
PO Numbers
Purchase order numbers and documents can significantly help small business accounting practices and often provide a safety net for ensuring payment.
Different from an invoice number, your PO number can contain numbers and letters that need to make sense to you.
POs should be consistent and organised to provide you with a clear paper trail.
If you’re currently struggling with late payment of invoices or would like to improve your collection processes and procedures, speak to a team member today; we’d be happy to help.
Call +44 7860 197476 or email: memberbenefits@directroute.co.uk