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What is a PO number for invoices & 5 tips to manage it

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Updated on:
July 13, 2023
July 13, 2023
Table of contents
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  • A PO (Purchase Order) number is a unique identifier for every transaction, helping precisely track and manage orders.
  • Including the PO number in your invoice helps clients match the invoice to their corresponding order, simplifying the payment process.
  • The difference between a PO number and an invoice number: A PO number is tied to a purchase order and set by the buyer, while an invoice number is linked to an invoice and set by the seller.
  • Creating a consistent PO number system can keep your business organized, with tools available to automate the process and track these numbers effectively

Whether you're freelancing in your pajamas or running a bustling small business, we know you're passionate about what you do. You're in the trenches, delivering fantastic services or products, lighting up your customers' days.

But then comes the paperwork. The invoicing, the order tracking, the financial records – it can seem like you're lost in a maze of numbers and details, right? And then, there are “PO number on invoices.” You might be wondering, what's that all about?

In this article, you’ll learn:

  • What is a PO number?
  • Purchase order vs. invoice: What’s the difference?
  • PO number vs. invoice number: What’s the difference?
  • PO numbers on invoices: What’s their role?
  • How to create & manage a PO number system: 5 easy tips

So, dive in and make your paperwork super easy!

What is a PO number?

A purchase Order number (or PO number) is a unique identifier for a specific transaction between a buyer and a seller.

Let's say you run a business dealing in wood for making furniture. A small business dealing in custom-made furniture needs wood in bulk from you to be able to make and sell furniture.

They agree on the price you’re selling it, note down what they want, and bam!

They generate a purchase order (A document that details the specifics of the order – what they want to order, how much they've agreed to pay, and other relevant details).

And to ensure this specific order can be tracked and identified, a unique PO number is assigned.

Why are PO numbers important?

Here are some of the key reasons why you need to have a PO number for your orders:

  1. They help track orders

You don't want to get caught in a situation where you're scratching your head trying to figure out the specifics of a past order, right?

Having a unique identifier for each order can easily help track and manage those orders.

  1. They're great for financial records

PO numbers are also necessary for keeping your financial records straight. They make it easier to match up invoices and orders, which is super handy when you're doing your accounting.

  1. They reduce errors

There's less room for misunderstandings or errors when you have a clear paper trail (or digital trail, in today's world). The details of the transaction are all right there in the Purchase Order, tied to the unique PO number.

Purchase order vs. invoice: What’s the difference?

But hey, "Aren't purchase orders and invoices the same thing?" Well, they're similar in the way that both are used during the purchase process, but both have distinct roles and are used at different times.

What is a purchase order?

A purchase order is a document created by the buyer or client. It outlines what they wish to purchase, its quantity, and the price. It’s like a formal, written version of saying, "I want to buy this from you, and I agree to your terms."

Here’s how a purchase order template looks.

What is an invoice?

An invoice is a document you issue your client after providing the service or delivering the product to your client. It's your way of saying, "Great doing business with you, now here's what you need to pay me."

Here’s how an invoice template looks. You can pick the one that suits your business and generate an invoice quickly.

PO number vs. invoice number: What’s the difference?

Both PO numbers and invoice numbers are unique identifiers, much like serial numbers, but each serves a different purpose.

What’s the purpose of a PO number?

A PO number is tied to a specific purchase order. It helps both the buyer and seller track the order from placement to delivery to payment. Remember, the PO number is set by the buyer when they place an order.

What’s the purpose of an invoice number?

An invoice number, meanwhile, is attached to the invoice. When you've provided your product or service, you'll generate an invoice with a unique invoice. This number helps you track which payments you've requested and received.

PO numbers on invoices: What’s their role?

Okay, so we've talked about what is a PO number and why it's essential. But how does it tie in with invoices?

Here's the thing: When you invoice a client for an order they've placed, you should include the PO number on the invoice. Why? Well, it helps your client match your invoice to the corresponding purchase order on their end. This way, they can confirm that they're being billed for the right thing and quickly process your payment.

You might be wondering: Does every invoice need a PO number? The answer is – it depends. It's a standard practice among enterprises or large businesses to use PO numbers.

But for freelancers or very small businesses, it might not always be necessary. However, even if you don't strictly need to use them, PO numbers can be a useful tool to help you keep your business organized.

How to create & manage a PO number system: 5 simple tips

Creating a PO number system can be as simple or as complex as you want. The key is consistency. Here are 5 simple tips to get you started:

  1. Decide on a PO number format

Your PO numbers could be a simple running tally (PO001, PO002, etc.), or they could include more information (like date, customer initials, etc.). Pick a format that suits your business needs.

  1. Keep them unique

Each PO number should be unique to avoid confusion. Never repeat a PO number, as that would make no sense at all for making it.

  1. Use a tool to generate and track

Developing a systematic way of generating and recording PO numbers can keep you organized. That system can be as simple as a spreadsheet or as sophisticated as an accounting software solution.

Once you've decided on a system, just stick with it. Changing systems can confuse and lead to errors.

  1. Include it on your invoices

Remember to always include the PO number on your invoice. It'll make life easier for both you and your client.

“But, where should I put a PO number on the invoice?”

Where you place the PO number can vary, but it should always be easy for your client to find. A common location is at the top of the invoice, near the invoice number.

Alternatively, you might place it near the description of the goods or services you're billing for.

Remember: The goal is to help your client match your invoice with their purchase order. So, keep it in a clear, noticeable place, and always label it as 'PO number' or 'Purchase Order Number' so there's no confusion about what this number represents.

  1. Track & follow-up

Use PO numbers to track your orders and payments. If an invoice hasn't been paid, check the corresponding PO number and follow up with the client.

Final words

By now, you’d have a clear idea about what is a purchase order, what is a PO number, and how you can use it effectively in your business.

While it might seem like a little extra work, trust us, using invoicing templates, and purchase order templates will make your transactions smoother, booked cleaner, and headaches fewer!

So, sign-up for a FREE 7-day trial and happy invoicing!

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