Purchase order systems – know how to work with them so they do not impact your cash flow

Purchase Orders – a control or an excuse?

I am seeing that businesses are often struggling to have their invoices paid on time and sometimes suffer undue delay in securing payment. This can have a significant impact on cash flow, particularly for smaller businesses or for those using sub-contractors who may have to be paid before payment is received from the client.When they do chase, they are being told that the reason is that the invoice is not supported/accompanied by a PO (purchase order) number.

Therefore I thought I would share some handy hints and other useful information on POs.

If you are told that the problem with payment is a lack of PO number:

  • ask them to explain their PO process. For example is there to be a separate PO number for each invoice or if you are delivering goods or services over time, will they be covered by one “umbrella” or “blanket” PO?
  • ask them who should give you the PO number and how long should it take for you to receive it?

A PO system is an internal process operated by companies to control expenditure. Usually it means that if a supply has a PO number, the expenditure is already approved internally and the invoice will not require further authorisation if the value is within the value of the PO (there may be exceptions to this).

The PO system facilitates control of budgets. Larger organisations run their budget systems at a departmental level so the PO number will allocate part of the department’s budget to meet the cost of your supply.

If you do not have and cannot get a PO number, it can mean that no department has accepted that your costs can come out of their budget and thus you can be left in limbo as to who will meet your costs. Having a PO number gives you comfort that someone/some department has accepted that your costs will come out of their budget.

If an invoice has a PO number, the Finance Department can often process payment without further authorisation. If a PO system is operated and an invoice does not have a PO number, the Finance Department cannot pay it. In such a situation, it is pointless chasing them. You need to chase the person who engaged you/ordered the goods from you.

Having a PO number shows you commitment. So if your client operates a PO system:

  • ask for the PO number when the order is made
  • continue to chase for it and think about stopping supply if it is not forth-coming (I know this is a difficult decision but it does show a lack of commitment by the client and you could be out of pocket – best limit that exposure). Also remember to chase the person who engaged you/ordered from you. Do not be fobbed off by being told to go to the Finance Department
  • Always put the PO number on the face of your invoices. Remember it may be that a separate one is needed for each invoice or it may be an umbrella PO in which case the same PO number can be used for the supply grouping
  • Always send your invoice to both the client’s Finance/ Accounts Payable departments and to your contact (PDFs should be sent). This stops them being able to play one off the other, blame each other and potentially stop the invoice having to be sent between the two.

Unfortunately, companies are sometimes “hiding behind” their PO processes and using them as an excuse to not pay/delay payment. Remember the PO process is their control system not yours. If it is not working, it is their system and not yours that is not working. You should not be penalised as a result.

Apologies (well, not really) if this stance sounds harsh but I get frustrated with the bigger fish abusing the smaller fish. Hopefully, if you are more informed by this article, you will have more confidence in battling the machine. Good luck.

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