What is a purchase order?
Everyone knows what an invoice is, right? It’s the document you send to your client setting out how much they need to pay you for a piece of work or product you’ve delivered to them. But do you know what a purchase order is? And did you realise that a purchase order may be the difference between your invoice being paid on time or overlooked for months in a finance department’s ‘pending’ pile?
If your eyes were glazing over at the thought of another finance term, open them up wide: purchase orders matter for freelancers.
What is a purchase order?
A purchase order (PO) is a document that a client issues to a supplier, setting out the services or products that they have agreed to buy and the amount they will pay for them. A purchase order can be used for anything from ordering stationery to commissioning freelancers, so chances are you’ll come across them at some point of your freelancing life.
If a purchase order sounds remarkably similar to an invoice, that’s because it is. In fact, purchase orders pretty much mirror what will eventually appear on the invoice. However, the big difference is that a purchase order is created by the client and issued before the work starts, whereas an invoice is sent out by the supplier to request the payment, often after the services have been delivered.
This means that purchase orders are super useful for freelancers because they are, in effect, a pre-authorisation of the work and your payment. If you have a purchase order from your client then, as long as you deliver what’s been agreed, your eventual invoice should sail through their finance system.
What is a purchase order number?
A purchase order number is a unique identifying code which is included on the purchase order. Purchase order numbers are used by the client’s company to match up the invoices that comPurchase order templatee in with the purchase orders authorising the work. This can save a busy finance team significant time as, rather than tracking down a different individual to sign off each invoice, they can simply check the details match those on the purchase order in order to process the payment.
The flip side of this is that some finance departments won’t process an invoice if it doesn’t have a purchase order number on it – and the first you might know about this is when you chase up a late payment. This means that it’s always worth checking with a client whether you need a purchase order number before you start delivering a piece of work to avoid any delays in getting paid.
However, don’t panic if you send in your invoice and then find that you should have included a purchase order number on it. Technically, purchase orders should always be generated in advance. In practice, your client should still be able to get one for you if you find that you need it at a later stage.
Why do purchase orders matter to freelancers?
Purchase orders matter to freelancers because they are, in effect, a contract to buy and pay for your services. This means that when you deliver the work and submit your invoice, the finance department can match it up with the authorised order and you should get paid without any hold ups.
Purchase orders are also useful as they provide both you and your client with a clear record of the work that has been commissioned and what is included in the price – giving you an official document to fall back on if your client starts to change the remit at a later stage.
How do I get a purchase order?
The important thing about purchase orders is that they are issued by the client and not the supplier. In other words, your client needs to give you a purchase order – you can’t create one yourself for work that you are supplying.
Some companies will automatically issue you with a purchase order once they agree the work. If not, ask your client if you need a purchase order. If they don’t commission work on a regular basis, make sure they check with the finance department – your direct contact may well not know what paperwork their finance team requires. A query from you can prompt them to check, saving you lots of time later chasing up unpaid invoices.
Do I need to include the purchase order number on my invoice?
Yes! If you’ve been given a purchase order (PO) number for a piece of work then you should include it on your invoice. This is particularly important for companies where the finance team is completely separate from the person who has commissioned the work. However, if you’ve been given a PO number, it’s always worth including it on your invoice.
When your invoice comes in, the person responsible for processing it will compare the PO number with their own records. If it matches up, your invoice can speed its way to payment. However, if there’s no PO number on the invoice, it may well be put into a ‘pending’ pile waiting for authorisation – and could stay there until you follow up and, eventually, find a suitable PO number to link to the invoice.
Do I need to create purchase orders?
If you buy services for your business, you might want or need to generate your own purchase orders. On a practical level, this means you have a record of what work you’ve commissioned and how much you’ve agreed to pay for it. More specifically, just as some clients will only pay invoices that include a purchase order, some companies will only deliver work once they’ve been given a PO number to confirm the work, so it’s definitely worth having one ready.
Creating a purchase order is as simple as filling in all the details on a purchase order template and then sending it off to the service provider – just make sure you use a unique PO number for each order.
The exact information that you include will depend on what you’re buying. However, as a minimum, the purchase order should clearly set out:
Name and business address of the provider
Your name and business address
Date of the order
Unique purchase order number
Details of what you’re purchasing
Shipping and delivery information, if relevant
Relevant terms & conditions (or a link to where these can be found)
Total cost of the order.
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