I’m often asked how to get one’s staff to increase the use of purchase orders. That can be a bit sticky because most of the people in your organisation probably have no idea why purchase orders are so important – they just appear to be an admin process that wastes a lot of time.
Just more paperwork?
They don’t realise that purchase orders can give management a long-term and accurate perspective of the company’s financial position and commitments or that purchase orders ensure that items are approved before the company commits to paying for them.
They also help ensure that the organisation receives more favourable transactions at lower costs by only dealing with preferred suppliers – identified, of course, by their use of purchase orders.
But let’s face it, you’ll probably never convince everyone in the company of the importance of purchase orders. So you have to take a different tack with the differing players in the game.
You need to make them request purchase orders when your staff place orders on them. And to do that, you must make it in the supplier’s best interest to do so.
The old carrot and stick
With some help from the Internet, that is. You set up an online suppliers portal. That’s now easier and cheaper to do than you might expect and simple enough for any supplier to use.
How does the supplier portal work?
Let’s take a typical example. The invoices arrive at your business. The supplier portal checks the invoice for a valid purchase order number from your own system.
If it matches a relevant purchase order, it automatically emails the supplier and advises that the invoice has been received.
If the invoice doesn’t have a valid purchase order number, the portal informs the supplier that the invoice cannot be accepted. It gives a link to the portal where the supplier can enter the valid purchase order number.
If the supplier does not have a purchase order number, the supplier is advised to contact the person who raised the order and ask for a purchase order number. All this without tying up your own staff.
Recognizing first-time suppliers
When a purchase order is raised on a first-time supplier, the portal recognizes this and automatically sends a message to the supplier along with the purchase order.
The supplier is thus informed of your procedure of only accepting invoices with purchase order numbers quoted. Which means if there’s no purchase order, the supplier doesn’t get paid. This message also describes how the portal works – with the portal’s web address and a username and password for the supplier.
The supplier will soon realise the need to ask for a purchase order at the time the order is placed to avoid a delay in getting paid. We make it easy for them to enter a purchase order number, be advised automatically when it’s approved, and learn when and how it was paid.
By demonstrating your requirement for purchased orders and making it easy for suppliers to create them, their use is increased, supplier relationships are improved and the number of inquires your accounts payable staff receive is reduced. Everybody wins.
In the coming weeks, we’ll talk about PCards. I’d like to hear your experiences and thoughts on when they should be used. I’d also be interested in your thoughts on what dollar value purchase orders should become mandatory.
But for now, if I’ve helped a bit with the purchase order problem, I’ll feel that all this typing has been worthwhile.