Purchase Orders Protect Shops
Do purchase orders really matter? Most diesel repair shops are small businesses, and they often dismiss business practices that larger companies use. This isn’t always a bad thing. Being small means you can also be nimble and quick. But there are certain business practices that should apply no matter how small you are. Purchase orders are a great example. Some shops may feel like purchase orders (also known as POs) are too formal. However, the fact is that purchase orders protect shops. They carry massive benefits for even the smallest business.
What is a Purchase Order?
A purchase order, or “PO,” is a document that buyers provide to vendors as a request for an order. It’s full of details such as the number of parts you want, the vendor’s identifying item number, a description of the items, and their prices. It also has a unique identifying number, called a “PO number.”
Out of sheer necessity, larger companies require that a PO be generated before they will pay a vendor. Without POs, handling vendor bills would become a logistical nightmare. That is because POs help ensure that a purchase was properly authorized, and that the amount and contents of the vendor’s bill matches what was originally ordered.
How Purchase Orders Protect Shops
Purchase orders protect shops in several ways. First, shops should require a valid PO number for any purchase on account with their vendors. Requiring a PO when buying parts ensures that only authorized people order parts on your account. When vendors understand purchase orders are required, they won’t let just anyone order parts and charge them to your account. (We’ve heard of many shops finding parts purchases on their vendor statement that actually belonged to another shop. Requiring a valid PO virtually eliminates this problem.)
A second way purchase orders protect shops is by the details they contain. According to Procurify, the more details included, the better. For example, knowing when specific parts were ordered, who ordered them, and what job they were ordered for. Say the vendor delivers the wrong parts, or charges the wrong price. If the vendor’s bill contains your PO number, you can easily refer back to the original PO to confirm what was actually ordered, and what it was supposed to cost.
Third, using purchase orders enables you to perform what’s called the “three-way match.” This is a powerful practice that virtually eliminates the problem of forgetting to bill parts to a customer. Without a purchase order, the three-way match is impossible to do. This is how it works:
When the vendor delivers your parts (or when you go pick them up), do the following:
- Match the quantity and part number for each part that is delivered to
- the vendor bill and to
- the original order (aka the purchase order or PO)
You will also match the part cost between the original order and the vendor bill.
How to Create a Purchase Order
So how do you create a purchase order? You’ll need three ingredients:
- A unique PO number
- An order description and quantity
- A price
You can write a PO on a scrap of paper, or piece one together in Microsoft Word. But using fleet repair software like Fullbay is a better option. The purchase orders are easy to make, they look more professional, and they are auto-generated with a PO number and are tied to the exact parts the customer is being charged for. In other words, you won’t forget to include all of the important details. We highly recommend that if you are using them yet, start using purchase orders to protect your shop.