The Issue: Accountability for company purchases and vendor charges becomes more critical the bigger your company grows.
The Bottom Line: A good purchase order (PO) process ensures that only authorized employees make authorized purchases on behalf of your company and reduces the opportunities for fraud and unauthorized or erroneous billing by vendors. Notice how many times we used the word “authorized”?!
For more, read on.
First, the good news: Most companies, regardless of their size, have the ability to institute a purchase order process with relatively little expense. Most accounting software programs, including QuickBooks, allow the creation of purchase orders, as do many green industry programs specializing in bidding and job-costing. A purchase order system does not have to be complex and consists of designating authorized employees that can request, issue and sign the PO to make it valid, notification to vendors that supplies and materials cannot be released except upon presentation of a valid, signed PO, steps to keep track of issued POs and reconcile them to the actual vendor invoices, and steps to cancel POs not used within a certain period of time.
Now, the bad news: If you do not currently have a purchase order process in place, you are likely losing control over critical areas of your business. Here are just a few examples. First, there is less control over the supplies and materials being purchased for the company and jobs that your employees are performing. This makes it difficult to verify material and quantities received, and to tie them back to specific jobs, or even determine who ordered the materials to begin with. And forget about being able to easily and accurately cost materials back to individual jobs to figure out profitability! Second, if you are not requiring vendors to verify the presence of a valid purchase order when employees show up to get material and supplies, you have basically given that employee a blank check to get whatever they want and have it charged to your company. Finally, vendors many times will write down the name of a company when employees come in to get material so they know who to bill later on. Not all company names are unique, and the proper company name is not always written down or communicated when materials are picked up. This means you may be charged for items that were not authorized, or worse, picked up by another company’s employees!
What to do? Make a commitment to work with your financial and admin staff to put a process in place that will begin to at least require the issuance of purchase orders. Get input from the operations areas it will affect and do your best to make the process and transition as smooth as possible so it does not negatively impact field productivity. Add more details as the process matures and continue to refine it to meet your company’s specific needs. Pushback from affected staff and departments is possible, but working together so everyone understands the reason for the process will help with the change, and return some critical control over expenditures and profitability.
Steele Dynamic Services is a green industry consultant focused on the internal business operations of our clients. If you need help with your accounts payable processes, or just about anything else, visit our website at SteeleDynamicServices.com to see our full line of services and to contact us to find out how we can help you create the future you want!
