It is more important than ever to control job costs. Mismanagement can jeopardize both cash flow and profits. To avoid these risks, many companies use purchase orders. The use of purchase orders also helps to eliminate work in accounts payable.
Purchase orders are still considered the best accounting practice for managing the ordering of goods and services. They allow companies to specify and track every detail of an order placed with a vendor. Once an invoice has been received by the accounts payable department, the purchase order helps guard against overpaying or double-paying invoices.
Despite the benefits of purchase orders, a lot of companies avoid using them because they think the process will be time-consuming and cumbersome. Maybe that was once true, but with technology today, the process can be streamlined and done with any device that has an internet connection and can interface with just about any accounting system.
With a purchase order system in place, a secured user can log on and create a requisition. The requisition typically will record the vendor, the product being ordered, the quantity and the price. It will also record how the purchase will be expensed. Once saved, the requisition will automatically go through a company-designed approval process. Once the requisition has been approved, it turns into a purchase order, and the product(s) can be ordered. The system will track who placed the order and who approved the order for tracking purposes.
Once approved, the purchase order can be imported into your accounting system as an encumbrance. This will allow financial reports to include all costs even if the invoice has not been received yet. This allows your employees to better track and manage the materials or work needed for the completion of the project. As an added bonus, once the invoice has been received, the purchase order can populate the expense side of the accounts payable transaction, eliminating the need for approvals after the invoice is received or errors in data entry.
Electronically creating, approving and posting of all costs allows costs and cash flow to be controlled. It’s a win-win solution for any organization.