A purchase order (PO) is a business document that a customer issues a supplier that records quantities, prices, and payment terms for the goods or services being purchased. The PO number is included on an invoice to tie it to the PO and help track what the customer ordered, from whom, and the order dates.
Midsized US businesses reported in 2022 that late-paying customers owed them an average of $304,066. PO numbers can help keep customers and sellers on the same page, speed up payments, and avoid mistakes. Below, we’ll explain what a PO number is and why it matters for businesses.
What’s in this article?
- What is a PO number, and why is it important on an invoice?
- How does a PO number help with invoice matching?
- What information does a PO number provide?
- When should you include a PO number on an invoice?
- How can PO numbers help prevent disputes?
- What are common mistakes to avoid when using PO numbers on invoices?
What is a PO number, and why is it important on an invoice?
A PO number is a unique identifier assigned to every order in the purchasing process. Here’s why it’s important to include it on an invoice:
Tracking orders: A PO number directly links an invoice with the original PO. This makes it easier to verify that the goods or services billed match the initial agreement.
Preventing errors: Businesses can catch discrepancies in pricing, quantities, or unauthorized charges by matching the invoice with the PO before payments are processed.
Efficient payments: Many businesses use PO numbers as part of their accounting systems. This helps automate payment approvals and ensures invoices are routed to the correct departments for review.
Promoting accountability: PO numbers create a paper trail to resolve disputes, track shipments, or manage returns.
How does a PO number help with invoice matching?
A PO number simplifies invoice matching by unifying what you’ve ordered, what you were billed for, and what you received. How it works:
Keeps you organized: This number connects the dots between the PO and the invoice. It’s like a tracking number for your order, so you can quickly confirm all details are correct.
Helps you catch mistakes: By comparing the PO, the invoice, and any delivery receipts, you can spot issues, such as being billed for something you didn’t order or a price that doesn’t match the original deal. This helps avoid costly errors and a lengthy refund process.
Speeds up the payment cycle: If you use accounting software, the PO number can trigger automated checks. The system can instantly match the invoice with the PO details, which reduces manual work and gets payments approved faster.
Makes audits simple: When all orders are tied to a PO number, it’s much easier to verify transactions. This helps you maintain clear records, which are important if you are audited.
What information does a PO number provide?
A PO number contains helpful information to keep your transactions organized. Here’s what it typically tells you:
An identity for the order: Every PO number is unique, so it serves as an ID for a specific purchase. This makes it easy to track and reference the order at any stage.
Who placed the order: The number usually ties the order to the customer, which helps sellers and their teams figure out who made the purchase.
What was ordered: Connecting the PO number to the PO lets you view details such as the requested items or services, quantities, and the pricing you agreed to.
When the order was placed: The PO number format often includes the date or time period of the order to sort and organize transactions.
Where the order is headed: The associated PO usually contains the delivery address, so the number can also help track where the items are going.
Terms of the deal: Details such as payment terms, deadlines, or specific instructions are tied to the PO, which lets both sides see what terms were set if they have the PO number.
When should you include a PO number on an invoice?
Whenever a customer provides a PO number for a purchase, you should include it on the invoice. Below are more details about when to include this number.
If it’s a customer requirement: Many businesses, especially larger organizations, use PO numbers in procurement processes. If the customer issued a PO number, they’ll expect it to be included on the invoice.
For more efficient payments: Including the PO number lets the customer easily match your invoice with the original PO. Without it, payment might be delayed or your invoice might be flagged for additional review.
To prevent miscommunication: A PO number makes clear what purchases are reflected in an invoice. Tying the invoice to the original terms reduces the chances of disputes or misunderstandings.
For your records: Using PO numbers makes it easier for your team to track transactions, especially if you manage multiple clients or orders.
How can PO numbers help prevent disputes?
With a PO number in place, there’s a documented chain of events that shows what was ordered, delivered, and billed. This makes it simpler to resolve disputes, especially if issues arise. Here’s how:
Creating a connection: The PO number connects the invoice to the original PO, which outlines the details of the order. This can eliminate any confusion between parties over what terms were set.
Smoother cross-checking: Customers can easily cross-check the invoice against the PO to confirm the details match using the PO number. This lets you spot errors and resolve them before making a payment.
Order verification: For physical goods, the PO number helps verify whether the quantity of products you’ve received are in line with what you ordered. If something is missing or incorrect, it’s easy to reference the PO and sort out the issue.
Less back-and-forth: A PO number is shorthand for the entire transaction, so both parties know they’re referring to the correct order. This reduces back-and-forth communication and misunderstandings about which invoice is being questioned.
What are common mistakes to avoid when using PO numbers on invoices?
Using PO numbers on invoices is typically a simple process, but mistakes can happen. Here are common errors to avoid:
Leaving out the PO number: If your client uses PO numbers to process invoices, forgetting the PO number can slow down payment or result in your invoice being rejected.
Using the wrong PO number: Accidentally referencing the wrong PO number—whether it’s for a different order or client—can lead to errors, disputes, or delays while the client works to untangle the issue.
Burying the number: If the PO number is difficult to spot on your invoice or is placed in an unexpected field, it might be overlooked. Clients expect the PO number to be featured in the invoice header or a designated “PO Number” field.
Failing to match details: A PO number is only helpful if the invoice matches the details of the original PO. Using incorrect quantities, descriptions, or prices can create confusion even if the PO number is correct.
Not updating systems: If you’re using software to generate invoices but fail to link the correct PO numbers in your system, the wrong information could end up on the invoice and cause unnecessary back-and-forth.
Reusing the same PO number: Each PO number must be unique. Reusing a PO number—intentionally or by mistake—can lead to accounting errors and incorrect records.
Relying on just the PO number: Though it’s important, the PO number doesn’t replace other key invoice details such as a description of goods or services, dates, and pricing. Leaving out these details or relying on the PO number alone makes your documentation incomplete.
The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accurateness, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular situation.