Benefits Of Using A Purchase Order System

By Laura Birchall, Business Advice Consultant at Sage

1.Get it right First Time

PO SystemSending a purchase order to your supplier is a legal offer to buy their products or services. If your supplier accepts the purchase order it usually forms a contract between you and your supplier, no contract exists until they have accepted the PO.

Purchase orders provide accurate documentation of what has been ordered in case of a dispute. A PO lists the item description, quantity, price, discounts, delivery instructions if applicable and date of ordering. This leaves less margin for error than a verbal order.

2. Projects and Purchases

A PO system outlines costs up front before a job begins. An order can be placed for a single project or several projects at the same time. When goods or services are ordered for a project the project reference should be applied to the order, to link the goods on order with the project.

This will automate the allocation of stock and application of costs to the project at each stage of the purchase order life cycle. A good purchase order system starts with a tight job quotes, if you want accurate P.O.’s you must calculate actual purchase order quantities and determine costs before a project commences.

3. Save your staff time

When your suppliers send an invoice that references your PO number, your staff won’t have to see if the bill is legitimate. The contract that is formed when your supplier accepts your PO eliminating any dispute.

The PO process has already ensured that it is and the proper accounting of it should be simple. The invoice would be entered to your accounting system referencing your original PO , recording delivery and updating your stock levels seamlessly.

4. Do business with Government and Local Authorities

Many Government agencies and authorities will only pay invoices upon receipt of a valid purchase order. If you cannot create this you are limiting your business opportunities going forward.

A business producing Purchase Orders suggests it is on top of its finances and cash flow gaining more confidence over businesses without this system.

5. Streamline your Stock

An effective Purchase Order system will show you your financial commitment on inventory. Current stock levels , stock on hold, reorder levels and free stock are all area’s that many businesses do not have clarity or control on leading to stock shortages.

Purchase ordering will allow you visibility on all these area’s along with cost prices and sales prices meaning you can see your product profit margins.

6. Super Suppliers

Many businesses do not know who their best suppliers are. Who do they order most of their products from ? what was the cost of previous products and should they be receiving preferential discounts? are questions many businesses leave unanswered .

A great PO system leaves none of these questions unanswered allowing for business control and clarity.

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