CONSTRUCTION Accounting ARTICLE - Could Automated Purchase Orders Speed Your Processes?

Target Audience: Construction Industry Professionals, General Contractors, Construction Accountants

Constant materials purchases on construction projects can cause a lot of confusion. Perhaps you’ve lost valuable hours during a busy workday tracking down invoices, double-checking figures, and making phone calls to managers and subcontractors. Don’t you have better things to do?

Well, as is the case with so many aspects of the construction business, technology is here to help. Automated purchase order software can speed your buying processes and take much of the guesswork out of who’s buying what, when.

The lowdown on POs

Purchase orders benefit the overall function of a construction company by creating a system for tracking purchases and subcontractor work, thus helping you manage inventory and expenses. Contractors that don’t use them can end up paying for materials that weren’t delivered and incomplete work.

Let’s look at a practical example: Suppose only half a shipment of 30 windows is delivered to a jobsite, but you receive an invoice for the full shipment. You might fail to reconcile this mistake if you don’t use purchase orders and could end up paying for something you don’t owe.

Moreover, companies that use purchase orders, but don’t use an automated purchase order system to support them, face the time-consuming process of manually comparing packing slips with the original purchase orders.

Mistakes cost money

By automating your purchase order system using accounting software that features a purchase order function, you can avoid such costly mistakes and save time.

For example, if you fail to receive a complete supply order, you can input the packing list into the program and automatically compare it to the purchase order. The system then produces a report showing the discrepancy and current inventory details. Most software can also be modified to alert you if your supplier tries to bill you for the full amount.

More complex software options can also help you track subcontractor billing and retainage. Whereas in the past you might have miscalculated profits due to a subcontractor’s outstanding bills, the system tracks what’s been billed and what’s still owed. Most software offerings also feature safeguards against overbilling and send alerts regarding unfulfilled contracts, as well as expired insurance or certifications on the subcontractor’s end.

Buy-in and setup

Most purchase order applications can use purchase orders to set up work orders, create schedules, and update and e-mail or fax weekly schedules. When a project is complete, the system can use the original work orders to create invoices and send payment to subcontractors and suppliers.

Getting buy-in from all employees and subcontractors can be daunting. The key is to introduce the idea of a new system early and explain its benefits. Make it clear to subcontractors that they can enter their data from any computer, using any type of Internet connection, ultimately simplifying the payment process.

As for your employees, most software companies will allow you to test their products in-house, which will allow your team to view all the options and try their hand at those features they are likely to use regularly. Keep in mind, too, that most systems can take two to six months to set up before they’re functioning smoothly.

The costs of purchase order software vary from very rudimentary “freeware” to more advanced packages that can cost in the tens of thousands of dollars, depending on their options. For the better applications, your investment usually includes tech support for implementation, which is helpful in terms of training employees and getting the system up and running.

A good time

With competition still stiff in many construction sectors, running a tight ship has never been more important. That’s what makes now a good time to consider an automated purchase order system. Although there’s an upfront investment, which obviously shouldn’t be taken lightly, the time and dollars you save could streamline your operations enough to give you a valuable competitive advantage.

Find out how our expertise in construction accounting can add value to your business. Email us or call us at 1 (888) 875-9770.

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