627: The Essential Benefits Of A Purchase Order System For Contractors

This Podcast Is Episode 627, And It's About The Essential Benefits Of A Purchase Order System For Contractors Running a small business is no small feat. Every purchase, every invoice, and every supplier relationship counts. But as your business grows, so does the complexity of managing procurement. This is where a Purchase Order (PO) System can help.    The importance of a POS for contractors cannot be overstated. In the fast-paced and often unpredictable world of construction, managing resources effectively is crucial for the success of any project. It is a fundamental tool that helps contractors streamline their procurement processes, maintain budget control, and ensure efficient communication with suppliers.   What is a Purchase Order System?   A POS tool helps businesses manage and automate the procurement process. It replaces manual methods with a structured, digital system to create, track, and manage purchase orders from start to finish. Think of it as your time-saving, mistake-reducing, cost-controlling ally in procurement.   

Do you need one? Let’s examine the benefits of using a purchase order system to help you decide if it is right for your business.

1. Reduce procurement time 

How much time do you spend manually tracking purchases or chasing up approvals? A purchase order system streamlines the entire process, liberating you from the burden of admin tasks. 

With just a few clicks, you can generate POs, send them for approval, and share them with suppliers. It simplifies requests by automating repetitive actions, helps you quickly process orders, and document all necessary approvals, freeing you up to focus on growing your business.

Quick Tip:

Look for a system that integrates seamlessly with your accounting software to automate even more of your workflow.

2. Enhance data quality 

Errors in procurement paperwork can lead to unnecessary spending or damaged supplier relationships. A PO system eliminates manual entry and tracks every detail, ensuring accurate and consistent records. You can keep track of materials and supplies needed for a project, reducing the risk of running out or over-ordering.

For example, automating data entry and storing everything in one place reduces mistakes, and locating records becomes much easier come tax season.

Quick Tip:

Choose systems with robust reporting features to give you insights into purchasing data.

3. Improve cost control 

Do you sometimes overspend because you aren’t tracking expenses in real time? A purchase order system changes this by offering real-time cost monitoring. It helps you manage your funds by clearly recording what has been ordered, how much it costs, and when payment is due.

The system links each purchase to a budget, instantly allowing you to see the impact. This ensures funds are appropriately allocated and prevents unexpected costs from creeping up. 

Quick Tip:

Ask us how we can set your PO system for you.

4. Streamline internal approvals 

How often do you deal with approval bottlenecks slowing down necessary purchases? With a PO system, approvals are digital, fast, and traceable.  It facilitates communication between you and your suppliers. They provide a formal way to convey requirements and expectations, which can reduce misunderstandings.

You can set up tiers of approval based on purchase size or department, and team members can quickly approve requests from anywhere. This gives you the control to make decisions without the hassle of paperwork. 

Quick Tip:

Implement systems that offer mobile notifications for approvals to keep things moving even when key decision-makers are on the go. 

5. Simplify compliance and audits 

Small businesses can find it daunting to keep track of compliance. PO systems create a clear audit trail, providing peace of mind that every purchase and approval is documented. 

In an industry where disputes can arise over the quality or timelines of materials, having a documented purchase order can safeguard contractors and suppliers. It establishes an explicit agreement regarding the purchase terms, offering a measure of protection should any issues arise. This legal backing can be invaluable in negotiations or as evidence in disputes.

Quick Tip:

For construction companies with complex regulations, ensure your PO system can handle complicated transactions and has audit-ready reporting features.

By formalizing the process of ordering materials, you can convey your requirements to suppliers. With a purchase order in place, both parties have a documented reference that outlines the specifics of the transaction, including quantities, prices, and delivery timelines, which fosters a more collaborative and transparent relationship.

This system creates a reliable audit trail. This is particularly important for financial reporting and compliance for contractors like you. Having a well-documented record of all purchases helps simplify the audit process, providing transparency and clarity that can build trust with clients, stakeholders, and financial institutions.

In conclusion

A purchase order system is not merely a bureaucratic formality but a vital contractor tool that supports effective budget management, inventory control, communication, legal protection, efficiency, and auditing. By incorporating a robust purchase order system into your operations, you can enhance your overall project management capabilities and increase the likelihood of delivering quality results on time and within budget.

If any of the challenges above resonate with you, then a purchase order system might be necessary to sort your procurement, save time, and control costs. Even for small construction businesses, the advantages, like improved efficiency and better supplier relationships, can have a significant impact as your operations grow.

Why not explore some options? Many PO systems offer free trials, giving you a risk-free opportunity to see how they could transform how you handle procurement. Start taking control of your purchases and setting your small business up for success. Chat with me today.

About The Author:

Sharie DeHart, QPA, is the co-founder of Business Consulting And Accounting in Lynnwood, Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations and offers insights on managing the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. Call 1-800-361-1770 or sharie@fasteasyaccounting.com