Confident Cashflow

Well, that may be a slight exaggeration, but they can certainly cause frustration.

What Are Purchase Order Numbers, and Why Are They Used?

A Purchase Order Number (PON) is an official confirmation of a buyer’s intent to purchase from a seller, covering the details of the transaction. A purchase order number helps both sellers and buyers track and reference the orders they’ve sent or received.

POs are used for several important reasons:

1. Legal Protection: POs are legally binding, safeguarding both the buyer and the seller by clearly defining the terms of the agreement and helping to prevent disputes.
2. Financial Control: Issuing POs helps businesses keep better control over their spending, ensuring purchases are planned and approved before they’re made.
3. Inventory Management: POs help businesses manage their inventory more effectively, tracking what’s been ordered and when it’s due to arrive, which helps avoid overstocking or running out of items.
4. Audit Trail: POs provide a clear audit trail for financial transactions, crucial for accounting and tax purposes, allowing businesses to verify their expenses.
5. Improved Supplier Relationships: Clear and formal POs set expectations with suppliers, reducing the chances of misunderstandings or errors in order fulfilment.

The Importance of PONs

It’s important to establish early on if PO numbers are required. Nothing is worse than chasing for payment only to be told “no PO, no payment”.

Establishing Your Customer’s Process for Issuing PO Numbers

To ensure timely payments and avoid unnecessary delays, getting to know your customer’s process for issuing Purchase Order Numbers is worthwhile. Here’s how:

1. Initial Discussion: During the early stages of your business relationship, discuss the customer’s process for issuing PO numbers. Ask who is responsible, what information is needed, and how long the process takes.
2. Document the Process: Once you have the necessary information, document the process clearly. Include contact details for the personnel responsible for issuing PO Numbers and any internal procedures that must be followed.
3. Set Expectations: Communicate your expectations regarding PO Numbers. Ensure your customer understands that timely issuance of PO Numbers is essential for prompt order processing.
4. Stay Up-to-Date: Maintain regular communication with your customer to ensure the process is followed. If their procedures change, make sure you’re updated promptly.
5. Regular Feedback: Create a feedback loop where issues with PO Numbers can be reported and addressed promptly. This helps identify and fix any recurring problems in the process.

Deciding on Purchase Order Number Requirements

If PO numbers are essential for getting paid, you need to decide if you will accept an order without one.

Sometimes, a buyer who needs your product or service urgently will promise a PO to follow, but once the order has been received, they will have little incentive to follow up on that promise. After all, they’ve got what they wanted.

The Real Impact on Your Cash Flow

Whilst this may seem like an internal issue for your customer, it’s you who suffers through late payment, and you are usually the one who has to resolve the issue!

Delays in payment due to missing PO numbers mean extra work for credit controllers, who must now chase after the buyer to fulfil their promise. This not only takes time but can strain the relationship between the supplier and the customer.

Strategies for Managing Purchase Order Numbers

There are a few things that you can do to reduce this kind of headache:

1. Clear Communication: Establish clear communication with customers about the necessity of PO numbers before processing orders. Ensure that all parties understand the importance of providing this information promptly.
2. No PO, No Order: Don’t be afraid to insist on PO numbers with every order (if your customer uses them) and stick to your guns. Communicate this stance clearly to all customers during the onboarding process.
3. Automated Systems: Use systems to flag orders or invoices without PO numbers. This reduces the risk of orders slipping through without the necessary documentation.
4. Follow-Up Procedures: Implement a robust follow-up procedure for obtaining PO numbers after the order if one should slip through the net.

While Purchase Order Numbers may seem like a minor administrative detail, their impact on the payment processes and, therefore, your cash flow cannot be underestimated.

Don’t let missing Purchase Order Numbers disrupt your cash flow and cause unnecessary stress. Take action now to streamline your payment processes and secure timely payments every time!

Get in touch if you need help updating your processes.