Most companies create several purchases within a year. Often, goods and services are ordered informally, but doing so runs a great risk of wasting both time and money. Here we look at 5 good reasons to actively use purchase orders in your business
Purchase orders – not only for large corporations
Using purchase orders is a great tool for better profitability and overview. The largest and most successful companies have realized this long ago, but now we see that an increasing number of small and medium-sized companies are using purchase orders as well. Let’s look at some of the main reasons to use purchase orders.
1. Clear agreements remove the risk of expensive misunderstandings
We have all experienced receiving an invoice that is more expensive than expected. Often this is due to unclear agreements that can be easily avoided.
By using purchase orders, an agreement is entered that ensures that you receive the correct goods, at the agreed terms at the correct delivery address. If you also add your standard terms of trade, you will be protected against negative surprises.
The following information should be included on all purchase orders
- A clear description of goods or service
- Delivery terms
- Delivery date
- Payment terms
- Standard purchase and delivery instructions
It might seem basic, but in informal purchase processes, these are typical areas that cause misunderstandings. Misunderstandings often lead to extra costs and wasted time.
2. Approval of cost commitments BEFORE you receive an invoice
Many have implemented good routines on invoice approval, but when the invoice arrives, it is usually too late to do anything about the cost.
By using purchase orders, this approval takes place BEFORE the purchase is carried out, at a time when all possibilities are still open.
Should you negotiate the price? Should you check the competitor’s price? Is the cost billable? These are questions it is possible to do something about before the order is completed. When the invoice arrives, it is too late.
3. Give the whole organization access to valuable information
Purchase orders contain a lot of valuable information for large parts of the organization. It may be whether a specific order is placed, when you expect a large delivery or when payment for an item or service is agreed.
If you add these purchase orders into a system, an even larger part of the organization will benefit from the information. Good purchase orders form the basis for clear communication, externally and internally
4. Removes risk of paying fraudulent invoices
Fraudulent invoices are a growing problem among businesses, and they tend to peak during holiday seasons when there are many temporary workers at companies. They look real and often include threats of fines if not paid when due. The increase in fraudulent invoices only tells us that many are tricked into paying them.
By using purchase orders, you will ensure good routines to avoid these scams. If you expect to see a PO number as a reference on all invoices you receive, you will be able to easily identify fraudulent invoices!
5. Easy invoice matching and great traceability
It is easier to match invoices to already approved purchase orders and it removes the need for time-consuming invoice approvals. In addition, you have good traceability on the invoice. Great audit trails save you both time and money related to auditing.
A purchase order system is also a great way to track your cost commitments. You can find an article about this topic here
How to get started with purchase orders?
If your business has a significant number of purchases within a year it is likely that you can achieve great benefits by the use of purchase orders.
You can implement manual / paper-based purchase orders to your business or you can implement a purchase order system. These systems are designed to give users complete visibility. New technology offers opportunities to reduce purchasing costs and at the same time make work more efficient
If you want to test a modern, cloud-based purchase order system, please contact us. CostTracker is a super easy purchase order system for small and medium-sized businesses.