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Purchase orders and invoices for corporations

Hi, I'm Karine from 24hr Bookkeeper. Why should you care about using purchase orders? Purchase orders can actually save you money and time. They help with budgeting, and allow you to feel like you have a plan in place when managing your costs. They eliminate potential errors and handle unexpected costs. A lot of the time, we manage our cost by having to look back at the estimate, or the hard bid and hope that when we get billed from that sub, we're still within those quoted numbers. If you start incorporating purchase orders in your business, you will find that managing approved work and cost gets a lot easier. So what is an actual purchase order? It's a commercial document and first official offer issued by a buyer to a seller indicating types, quantities, and agreed prices for products and services. In more simple terms, you promise to pay that subcontractor a certain amount of money on this project and that subcontractor agrees and the work is therefore approved. It usually includes the description of the scope price payment terms and possibly a job reference number. A purchase order allows you to manage the amounts to be paid for the subcontractor over a period of time. You can make multiple payments against this P.O., or just use it as a tool to be on the same page as your subcontractor. I suggest that once you get your contracts signed by your customer, which puts your contract in effect, you would create all of your purchase orders on the job. This allows you to be proactive and manage your bids prior to any work being performed, or any changes occurring on the job. I don't want you to get confused when it comes to managing bills versus purchase orders. Let me tell you the difference between the two. A purchase order is saying, "Mister, sub, I promise to pay you X amount of dollars on this project." Once this person performs the work, they send you an invoice, which is basically a request for payment for the work in which they have just completed. This invoice would close out the purchase order. A bill ,on the other hand, is the processing of an invoice with the intention to pay it right away or on a schedule. There wasn't an exchange of paperwork besides the actual invoice. You typically pay bills in full when they're processed. I'm a big fan of using construction software. So, I'm going to tell you what using purchase orders in construction software does for your business. Trying to manage a budget without purchase orders is like not having a gatekeeper to make sure you were billed correctly on work that was done. Let's say that I'm working with my electrician, and the cost for his work on the project is $20,000. I know that I'll be billed once for rough-in and once her final, which means, two invoices for my electrician. My budget, or my estimate, states $20,000, but the fact that I'm giving him a purchase order for $20,000 gives me additional functionality if he bills me a total of $21,000. My software doesn't actually let me process that invoice because it's over the amount that was originally agreed upon. You'd have to be referencing the original bid submitted to know for sure did he bill me an extra thousand dollars or did I forget to process a change order on the job? This is what's great about purchase orders. In this case, it would be a big red flag stating something has changed. The difference between having a purchase order, and trying to manage the budget line item is that you wouldn't know what time of processing that you were over billed. There could be lengthy periods of time in between payments and purchase orders will provide info on what costs are still outstanding. Get a head start on managing your financials by incorporating purchase orders in your process. Thanks for watching this video for more videos, make sure to click subscribe. You can also find more info on financial management by going to our website at .24hrbookkeeper.com which can be found in the comments. See ya!