Using Purchase Orders

Using purchase orders should be considered if you’re in a business that requires materials to be purchased each month, and you have employees doing the purchasing, receiving and/or bill paying.  Also, it's unwise to have the same employee doing the purchasing and the receiving. 

Don't tempt anyone to steal from you.  When a business grows, sometimes it's hard to keep up with the paperwork and inventory items, and you may not have time to do these things yourself.  But it's always wise to have different employees responsible for the buying, the receiving, and the paying.

When you are using purchase orders, anything that is purchased would require a purchase order (PO) and it would require your signature.  Or, at least a shop manager's signature.  That will stop any unauthorized purchases.  If the same person orders parts and receives the parts into the shop, they could buy things and then take them home.  Who's going to know?  Whoever pays the bills will assume it's a legit bill and pay it.

If you are using POs, the bookkeeper will require a copy of the signed PO with the invoice from the vendor, so if a purchase wasn't authorized, they will question the purchase.

You should keep a copy of each PO with the invoice in your Accounts Payable function, and then keep another copy in a file with your Buyer.  This will help them keep track of what they ordered from whom.  They might keep the POs in a file by number, or by vendor.  If you have the copies, you could keep files by both number and vendor.  If you're using a computer system, you will have copies in the system, so you don't need to keep physical paper copies.

That said, if you’re the owner and you do all the buying and receiving, there’s not much of a reason for using purchase orders. It would just bog you down in more paperwork. But if you’ve got several employees involved in the buying/receiving process, it makes good business sense.  They can provide many benefits.

benefits of using purchase orders

  • Clearly defines the materials purchased
  • Specifies the job the materials are for
  • Makes sure the invoiced price is the quoted price
  • Requires owner approval for any materials purchased
  • Requires an employee check the materials as they come in and make sure they’re what was ordered
  • Requires the bookkeeper to have a signed PO for each vendor invoice, which proves the products purchased were authorized
  • Cuts down on fraud where employees order materials and take home or sell them

For more details, download my free whitepaper for the correct way to use purchase orders and more of how they can help your business.

Complete the form to download my free whitepaper for step-by-step instructions.