Introduction
As a general contractor in the Canadian construction industry, you are probably juggling project scheduling, labour productivity, installation quality, and overall safety, Every. Single. Day.
And on top of all of that, your accounting department expects you to do data entry for your purchases? No Problem! Just pause the site work! It’s not like you’re on a deadline or anything!
In reality, preparing purchase order documents is not that dramatic, and it doesn’t have to take up all of your time. The first step to making the process easier for your team is helping them understand why it is so important.
In this post, we’ll define what is a Purchase Order, explain why it is crucial, and provide 3 tips for how you can make them more accurate.
Table of Contents
- What is a Purchase Order?
- Why are Purchase Orders Important?
- 3 Tips for Having Accurate Purchase Orders
What is a Purchase Order?
A Purchase Order, or PO, is a document that confirms that a purchase was made on a credit account with a supplier, where payment will typically be made later. With a purchase order system, you can make sure that your company’s purchases are controlled and transparent.
The more accurate that a purchase order is, the better it is for your accounting process.
First, you will need a quote or rate sheet from your selected supplier.
Next, make sure to assign the appropriate cost code or budget code to your buying items.
Once all the information and pricing get approved, the accounting department will issue a PO on your behalf.
Why are Purchase Orders Important?
Without a purchase order, your job site will not receive the required materials, equipment, or services to stay effective.
But the purchase order processes can be painful – so painful that we are tempted to cut corners to save time. This is because contractors do not have time to sit around all day doing data entry…they have building to do.
Here comes the domino effect: when paper documentation for POs is inaccurate, accounting must go on a wild goose chase trying to match up invoices.
You know what that means? That means the supplier’s bill can’t be paid. (Maybe that’s why Ontario mandated a Prompt Payment Legislation?)
3 Tips for Having Accurate Purchase Orders
1. Ensure Accurate Requisitions
If your order request isn’t accurate, then your Purchase order won’t be either. Accuracy relies on the transparent communication between you and the supplier,
Have you ever heard of purchasing ping pong? It is a painful process where an onsite worker tells the supplier that he needs an item, and through several hours of back-and-forth emailing, the supplier has to dig out information on sizes, quantities, and lengths. Accuracy helps suppliers and your accounting team know exactly what to expect, and you get to skip all the back and forth.
2. Have a Paper Trail
A common problem is that onsite workers realize they forgot to add a line item and go directly to the supplier. The supplier, wanting to be helpful, adds the item to the initial order. Because accounting was never informed of this additional item, it never shows up on the purchase order, and the supplier doesn’t get paid for the added item (cue supplier frustration).
This is one reason why it is crucial to have a written copy of the material request. This copy means not just texting your supplier but sending them an email that is accessible through the company system. This way, the purchasing department can reference a conversation record, making it easier to issue accurate purchase orders.
3. Automating your Purchase Orders
Current purchase order processes are time-consuming because they rely on manual data entry, human intervention, physical records, and lengthy approval processes. The more you can automate these steps, the more your accountants will love you (because who doesn’t love breezy consolidation?).
Now, this is different than an electronic PO; yes, an e-PO is faster than a handwritten PO, but construction processes are getting more and more digital every time you blink. If you haven’t updated your strategy in a year, then you are miles behind the rest of the industry.
Conclusion
The purchase order process is a necessary evil in the construction industry because projects will not be completed on time without it. However, if your company ensures accurate requisitions, maintains a paper trail, and automates as much of the process as possible, then this necessity will seem a lot less evil.
Are you ready to help your business have the most efficient PO process? Purchase orders issued from QuoteToMe are timely, accurate, and fast – all with minimal effort from the user!
Note about the Author
Natasha Mager is a Customer Success Specialist at QuoteToMe. She is passionate about inbound marketing and organic growth. Her goal is to help the construction industry learn how they can optimize their purchasing processes. You can find Natasha on Linkedin.