We’ve all dealt with it. You find a vendor’s invoice floating around the office, and you’re not sure if you ever billed it to the customer. Or a technician installed a part on a truck but forgot to turn in the invoice. So how do you keep this from happening? It all depends on how your shop is receiving heavy duty parts.
And it’s not as complicated as you might think.
Receiving Heavy Duty Parts
When receiving heavy duty parts in your shop, take the time to match up three things:
- Your purchase order
- The vendor’s invoice
- The parts
In the accounting world, this is called a “three-way match”. Major, multi-million dollar enterprise systems that run Fortune 500 companies are built around it. And for good reason. A company that can’t get this right will not stay in business long. Diesel repair shops are no exception.
But the concept itself is very simple: Make sure what you ordered is what was actually delivered, and that it all matches the invoice you eventually have to pay.
Your Purchase Order
A purchase order, or a “PO”, is basically just a request to buy something. It’s a commercial document. A buyer gives it to a seller. In the heavy duty industry, these are typically used to buy parts. They are very helpful it tying vendor invoices back to specific repairs. It’s up to the shop owner whether a PO is required to buy parts. A shop can tell a vendor that no parts can be bought on account without a PO number.
We’ve seen cases where the vendor charges a shop for someone else’s parts by mistake. And unless the shop is meticulously checking statements, they will end up paying for the parts and not even realize it. Requiring a PO helps prevent this.
Some shops use sequential numbering for POs. But this is not foolproof, because it makes the POs easy to guess. To save time, vendors or even employees will sometimes make up PO numbers by just using one of the next numbers in sequence. It’s usually not with bad intent, but it defeats the whole purpose of a PO. And it’s difficult to catch.
Fullbay solves this problem by using randomly-generated alphanumeric POs. They are virtually impossible to guess. We have seen cases where vendors try to spoof them. But it’s extremely easy to spot.
The PO should tie back to the customer invoice when the job is complete. This ensures you bill customers for everything you ordered (plus markup).
The Vendor’s Invoice
A shop will usually get an invoice along with the parts. Sometimes the parts come with only a pick list or a packing slip. The invoice comes soon after. If you pay on the spot, the invoice might just be a receipt. But if you have credit terms, the invoice will tell you how much you owe and when. Usually within 30 days.
Whether you use a purchase order or get an invoice right away, the whole point is to get the parts. Carrying inventory is expensive. So the ideal is to order parts as they are needed, assuming you can get them fast enough.
But speed doesn’t help much if you leave parts off a customer’s invoice. Or the shop pays for someone else’s parts. In fact, a simple math exercise shows how devastating poor control over receiving heavy duty parts can be:
Let’s say in a given week you leave $100 in parts off various customer invoices. Then let’s say your shop is making a 10% profit (common for shops before using Fullbay). You would have to do an extra $1,000 job every week, just to make up for not invoicing those parts.
The reality is that most shops leave hundreds of dollars in parts off customer invoices every month. The three-way match would prevent this.
Three Way Match
This is how the three way match works. The vendor shows up with the parts (or you run and get them). The vendor will hand you two things: (1) the parts, and (2) an invoice. Take the parts and compare them to the invoice. Make sure the invoice matches the parts they gave you. Check descriptions. Make sure part numbers and quantities match exactly.
Next, compare the invoice with your purchase order. Check the descriptions, and make sure quantities and dollar amounts match exactly. If anything is off, investigate. If everything looks good to go, you can confidently pay that bill when it comes due because you know two things:
- You actually received the parts, and
- The customer was invoiced for them
We baked the three-way match into Fullbay so you can get the benefits during your normal workflow. To see how this works, please request a demo below.