What is the Importance of PO Number on an Invoice?
Oct 27, 2020
Why should you have a PO Number?
A Purchase Order number (PO Number) can be defined as a unique number assigned to an individual or small business owner to purchase an order form. The purchase order number helps to maintain a list of products that small business owners require to receive from the suppliers or vendors.
The purchase order number will serve as a reference throughout the entire transaction and is settled by the seller and purchaser alike.
Here’s What We’ll Cover:
- Why is a PO needed?
- How Do Purchase Orders and Invoices Work?
- How Do You Create a PO Number?
- What are P.O. invoices and Non-P.O. Invoices?
- What Information Must Be Included on a Purchase Order?
Why is a PO Needed?
Purchase order (PO) gives a complete understanding to the customers about the descriptions of products or services a supplier has provided to them. In the first instance, it may seem a minor thing, but the payment history of such supplier POs becomes the deciding factor of a company’s performance for a specific product. It also helps companies in making changes and optimizing the current small business process.
A purchase order is a legally binding contract between a seller and the purchaser that includes all the useful information about the products or service purchases along with the payment terms. Such order is also the reason for recording accounts’ details and contains all the essential information needed for a successful business process.
Information stated in the PO number system such as the number of purchased items and their prices help businesses in setting up the profit target and the required volume of sales.
The volume of purchases specified in the PO may be the basis for making decisions regarding the payment cycle, cash flow, and business processes. The purchase order will particularly and for a moment describe many things that are going well with all the other technological stages of cash flow. It also helps you determine whether there is a need for business product improvement or not to continue the business process.
How Do Invoices and Purchase Orders Work?
A purchase order is made and issued based on the delivery date by the client or buyer of particular goods and services at the beginning of a transaction to help the payroll firm. It entails the order details of a specific sale, such as the service or products required, the price agreed upon, and the amounts paid.
Adequately filled purchase order numbers should contain enough details about the product or service payment in dollar amount, so the seller would understand easily, without having to ask many questions. A Purchase Order is considered legally binding since it is approved by both parties involved in the payment transaction.
The purchase order numbers are usually located at the top of these forms and can be referenced throughout the whole transaction, such as shipping forms, clients’ phone calls, and invoices.
The seller usually issues invoices upon completion of a transaction after the terms outlined in the purchase order form have been agreed upon by the purchasing department.
The invoices serve as the bill. Just like the purchase order, it’ll also list important details about the service provided or delivered by the seller, including price, quantities, and mode of payments like credit card or bank account. Most of the time, it also references the PO number indicating the transaction was pre-approved.
After receiving the invoices, the buyer is expected to pay within the terms that were previously agreed upon (for example, the seller requires payments within two weeks).
How Do You Create a PO Number?
It is easier for small businesses to license a professional purchase order system (usually as a member of a large accounting software solution) than to create an entirely new PO number and also assign a number to every new order.
Licensing a professional purchase order system is just way easier, and it saves a lot of time and effort, especially for growing businesses.
Accounting business software will help generate automatic fields for the entry of PO number info, and assign a new content and unique number to every new order connected with each other. A standard software accounting system should also be able to route purchase orders for signing off automatically.
What is P.O. Invoice and Non-P.O. Invoice?
Purchase Orders are a form of an invoice that helps to reference the purchase order number with the actual invoice. A non-PO number invoice is unable to do this. Invoice means the purchase order is not required for the transaction of services to get billed for.
Some of the reasons for not generating a purchase order includes:
- The order was processed too quickly (the customer didn’t have the time to give one)
- The transaction wasn’t up to a specific amount or dollar figure. Some companies have the policy and payments term not to issue POs for transactions that did not exceed a particular dollar value. For instance, some companies believe that they do not need any purchase order for transactions below $10,000. If a purchase order is required with a reference number, it will be forwarded for management approval.
- The small businesses requesting the service of the product are too small, and therefore, do not have the resources required for the purchase order systems or proper accounting.
Basically, the PO number is an important factor for every business to identify all the purchases a vendor or a purchaser has made. With the help of a PO number, all the people involved can be on the same page along with all the tiny details that are included in a PO number. There are many advantages to using a PO number in a purchase order such as you will be able to easily track the invoice using a unique ID that indicates transactions.
Buyers send POs to the suppliers or vendors to justify their intent about the purchased products or services. This legal document specifies the aspects of their order like costs and the quantities requested. Once a customer receives and accepts the payment terms of purchase orders, it initially becomes a legally binding contract. It is important that businesses stay on top of their purchase orders.