PO Number Definition: 4 Reasons Why PO Numbers are Important

Nicole Georgiev
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    Does your business rely on the procurement process? If so, you’re likely trying to ensure efficient supply chain management, especially when it comes to the procurement process. This is where a PO number comes in handy. 

    A PO number alleviates additional stress and strain that you, as a business owner, may go through. It helps with organization, accounting, and order management solutions

    This blog covers what is a PO number and how to use it for your business. This way, you can maintain your purchase orders properly and efficiently run your business. 

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    PO Number Definition and What Is a PO Number?

    A PO number is a unique number assigned to a purchase order and is also used for an invoice. Purchase orders are documents buyers send to sellers requesting goods or services. 

    Some refer to the purchase order as a wholesale purchase agreement. Be sure to also check out, “What is an invoice” to better understand the difference between purchase order vs invoice.

    A purchase order includes different elements including the order date, a detailed list of the goods and services requested, product quantities, and the PO number. The PO number is a reference code assigned to a specific order. 

    You can create this reference code manually or using automatic software such as marketing automation software. PO numbers help businesses identify and track orders during the procurement process.

    eCommerce accounting departments also use PO numbers to help with record-keeping. They’re useful for keeping track of accounts payable and receivable, inventory management, and operations. 

    Without a PO number, it’s difficult to locate essential accounting records. That’s why many businesses rely on them to ensure operational efficiency.

    Key Takeaway: Purchase order numbers are unique identifiers for purchase order documents. They simplify PO and invoice management practices and also help with financial auditing.

    Where Is the Purchase Order Number Located?

    The PO number is located at the top of a purchase order, usually in the header. Many businesses will use a larger font size or bold font to make it stand out from the rest of the order. 

    Wholesale product vendors issue invoices using the same PO number. This way buyers can easily match the number with the appropriate order. 

    An inventory control manager will typically back-check the orders once they receive them. To do this, they match the PO number on the invoice with the one on the packing slip. This ensures they have received all the goods. 

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    4 Reasons Why PO Numbers are Important

    PO numbers are important, especially when your business has high levels of purchasing. This is common for businesses in the restaurant industry or hospitality industry.

    Here are four reasons why PO numbers are important to utilize:

    1. Tracking Transactions

    A PO number can help businesses with inventory tracking, order tracking, and purchase order tracking. Each order has a unique PO number assigned to it. This means you can track when the goods are expected to be delivered and stay on top of delivery confirmation. 

    Having a purchase order document makes it easy to organize operations and budget properly. Electronic purchase order software makes it possible to detect duplicate PO numbers and identify potential errors in each transaction. 

    2. Improve the Supply Chain

    In most businesses, the supply chain is a crucial part of the procurement process. To better familiarize yourself with supply chain management practices, look into, “what is supply chain management?”. 

    PO numbers make it possible to identify abnormalities within the purchasing system. For example, if you run an audit of your suppliers and their efficiency, you can identify different parameters. 

    Such parameters include inaccurate orders and invoice processing, higher prices, late deliveries, payment disputes, or lack of inventory. Identifying these problems with PO numbers gives you insight into how many mistakes your vendor has made.

    This information will allow you to look into how to find vendors based on what you’re existing vendors are lacking. As a result, you will improve your supply chain. 

    3. Develop Supplier Relationships

    When running a wholesale business, or a business that deals with procurement, you rely on your suppliers for raw goods and materials. Be sure to understand what is raw materials inventory

    Being able to identify your purchase orders quickly and accurately will help you manage your suppliers. This is necessary when you want to discuss order troubleshooting, volume discounts, large orders, and partnership development. PO numbers are what speed up this process because they are unique to each purchase order.

    4. Auditing

    Part of opening a business and running one successfully is performing an inventory audit and financial audit. Purchase orders are part of the paper trail that is used to cross-check invoices. 

    They also verify purchasing activity. You can simplify the auditing process with PO numbers by associating each number with its respective order and invoice.

    How to Create a Purchase Order Number

    A purchase order number is created by the buyer. It is generated and assigned to a purchase order to keep track of the transaction. 

    It’s possible to use accounting software to automatically create and assign a number. Such software will also input the PO number into the appropriate field within the purchase order form. This kind of automation saves time and effort.  

    Here are two ways to create a PO number:

    1. Manually

    When running a small business, you will likely deal with fewer purchase orders than you would in a larger business. This makes it easier for you to manually generate each PO number. 

    To do this, you can mix the use of numbers, letters, and dashes. For example, you can use ‘PO’ and add numbers to it such as: PO 0001. For each additional purchase order, you simply increase the number in sequential order from the previous one. 

    Some businesses will include the date within the PO number. For example, PO 081822-0001. Including the date makes it easy to remember when the purchase order was issued. 

    2. Automatically

    If you’re dealing with numerous purchase orders, it’s more efficient to automate the process. This way you can avoid the tedious and time-consuming process of manually generating each PO number. 

    You can utilize cloud-based accounting software to automatically generate PO numbers. Such software will simplify the process while also helping you keep track of each order. This software is similar to invoicing software for small businesses

    It’s also possible to use a purchase order template to easily generate purchase orders. This is a simple and time-saving way to complete the process. 

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    Frequently Asked Questions About P.O. Numbers

    A PO number is a unique code assigned to each purchase order. These numbers are used to identify and organize each order during the procurement and auditing process. Learn about what is procurement, procurement management, and procurement vs purchasing.

    To learn more about PO numbers, read the following commonly asked questions:

    Is a PO Number and Invoice Number the Same?

    No, the PO number and invoice number are not the same. However, both are unique codes that are identifiers for purchase order documents and invoice documents. 

    Invoices have PO numbers that are used to reference the respective order, but an invoice number is specific to the invoice document. Purchase orders don’t include invoice numbers. 

    Is a Purchase Order Legally Binding?

    Yes, a purchase order is legally binding when both the buyer and seller sign the document. The buyer initiates the purchase order and the seller has to choose whether to accept or reject it. 

    Is the PO Number the Order Number?

    Yes, the PO number is also referred to as the order number. It is a unique code assigned to the purchase order document by the buyer. 

    PO numbers are generated manually by the order management team or using automatic accounting software. They help businesses track the order throughout the procurement process and are used to reference specific orders once they have been fulfilled.

    How Many Characters Is a PO Number?

    A PO number will range between four and six characters. It’s possible to include letters, numbers, and dashes for the PO number. 

    When Should I Create a PO Number?

    The buyer should create a PO number when they want to purchase goods or services. PO numbers are typically at the top of the purchase order document.

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