Tax & admin 2 October 2020

What is a PO number and why is it important?

Digital purchase order on a tablet
A PO number ensures that your invoice gets processed as quickly as possible
Getting paid on time is absolutely pivotal to the success of a small business and a purchase order (PO) number plays a significant role in that. Ormsby Street director Martin Campbell explains what they are.

When you first start a business, it can feel like there are a million and one things that you need to learn. For many, getting their head around accounts can feel the most daunting.

For some reason, people feel a little intimidated by number stuff, and while there is the option of using an accountant, book-keeper or payroll firm for some of this, for most small business owners this is not affordable or realistic, particularly in the first few years.

So it’s a question of getting your head around some new skills and terminology. One such term to understand is the POnumber.

What exactly is a POnumber?

While some small businesses do not always bother with purchase order numbers, they should really be used by any company that sells products or needs to order parts and materials from another supplier.

A purchase order outlines to a vendor or supplier exactly what the purchaser needs, when they need it by, how much it’s going to cost and when payment should be made.

It is prepared by the buyer, and can be done using simple cloud-based software, which help with tracking and digital submission of orders to the supplier, or can also be completed manually.

The purchase order should include a POnumber, which should be a unique reference that enables the matching of shipments with purchases.



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Why are POnumbers important?

In an ideal world, everyone would pay on time, and all orders would be exactly as they were intended. However, unfortunately that’s not the case and payments can be missed and orders managed incorrectly.

A purchase order is a legally binding document between a supplier and a buyer. Or put another way, if you don’t have a purchase order, you don’t have an order from the customer.

Accepting a verbal order particularly for services is very common with small businesses, and many don’t know that the bigger businesses they are selling to not only have purchase order systems, but insist that they are used.

Thus if business is done without a purchase order, administration will likely be delayed in when your invoice is received and the finance team say what’s this