Almost all SMEs and medium sized companies including charities purchase something. From everyday things such as tools, cleaning products and getting them approved for urgent maintenance, or other customer projects. That’s when purchase order errors creep in undetected.
No matter what you purchase, it’s common business practice to make sure purchase orders are approved before the supplier gets your order. As I have mentioned, mistakes happen all the time. Some orders may be delivered without being approved, or even short or oversupplied. In the long run those errors will accumulate and cost your business millions, and if not curbed early on, those purchase order errors can cripple your business.
However, you will find that there are also those procurement errors that are hard to detect. This happens mostly if your company relies only on Excel spreadsheets and email as tools of processing purchase orders.
Purchase Order errors associated with Excel spreadsheets
Thirty years down the line Microsoft Excel remains the go-to product for many people looking to make sense of data. Accountants love it. And some entrepreneurs still use it to analyse, manipulate, visualise data, or to make sense of it. Is it the best tool? That is debatable.
One disadvantage of using Excel is that it leaves room for human error. In addition, it involves a lot of data capturing. While on the surface it feels easy-to-use, Excel requires more manual dexterity than an easy-to-use purchase order software.
Let’s look at common errors associated with processing purchase orders.
- Making snap decisions
Sometimes when an urgent need for purchases arises, you may find yourself making a snappy decision. Let’s say your site manager alerts you about a shortage of building materials, then you decide to approve a purchase requisition straight away.
You do this because you don’t want to delay the project. You say, “Go ahead and buy what’s needed but make sure you send me the quotation and invoice later.” Later becomes later, and before you know it, you have five POs waiting for your approval.
So what are the odds of doing this? The supplier is likely to,
- Over deliver,
- Under deliver, or
- Overcharge you on the invoice.
- Accepting a given price at face value
Another procurement mistake you should look out for is accepting the price as it is. Remember that most suppliers are open to negotiations. So, you should put those negotiation skills to the test.
Doug Bend, Managing Partner at Bend Law Group (law firm) advises that you do this by finding an area of mutual gain between you and your supplier.
He says, “Spend time to discover the supplier’s goals to increase the mutual gains achieved in the agreement.”
In other words, when you try to negotiate price but your supplier doesn’t budge, focus on other areas where you can find common ground. This could include areas such as times of payments, delivery dates, a discount for bulk purchasing, etc.
3.Approving POs without a quotation
A quotation is a confirmation from the supplier about the availability of needed goods. It is also known as a request for quotation (RFQ) or as most people call it, a “quote”. An employee can request a quote during the early stages of processing purchase orders.
Generally, every quotation should have the following details:
- Total cost,
- Cost breakdown,
- Payment terms and conditions,
- Quote expiry date,
- Payment methods, etc.
Just make sure you don’t approve a purchase requisition without a quotation. I know how tempting it is to cite time constraints as a top reason why purchase orders are sent without checking quotations. Mostly in situations like when you give only a verbal agreement, hoping to sort out all the necessary paperwork later.
If this is the norm in your company, you should consider doing something about it.
- Losing invoices
Document loss and errors in invoicing are common, but most entrepreneurs ignore errors in lost order forms. Why? Because in most cases processing orders is handled by junior staff members. What we tend to forget is that handling paper often comes hand in hand with losing copies or making filing and archiving mistakes. This obviously becomes a problem when it comes to invoicing your clients, especially if you can’t prove that the products and services delivered matches what was ordered. This causes errors throughout the entire billing cycle. Customers won’t appreciate receiving invoices for merchandise that they never received. Chances are they will refuse to pay it.
- Not using a PO management system
Did you know that there are simple ways to greatly minimise errors associated with processing purchase orders? Using Purchase Order software is one of them.
One of the advantages of using a purchase order software is that procurement mistakes are caught early on. This is because software such as Procurementexpress.com connects purchase order creators and approvers. It is easy to use and runs in the cloud. Approvers would be able to pick up mistakes before the purchase order is sent to the supplier.
Other benefits worth mentioning include:
- approving purchase requisitions within 20 minutes,
- sending a purchase order within 30 minutes, and
- tracking a purchase order with the supplier within 20 minutes.
In other words, your business would be able to cut processing times. And, what’s more interesting is that you’d locate purchase order reports much faster.
