Importance Of Purchase Order In Construction

What is a Construction Purchase Order (PO)?

A construction purchase order (PO) is a legally binding document sent to a materials vendor to honor a sale. It outlines the details of a given purchase, including quantity and price, serving as a legal promise that the contractor will collect and pay for the materials at a later date. Once accepted by the seller, the PO becomes a binding contract, ensuring both parties adhere to the agreed terms and conditions.

When is a Construction Purchase Order Required?

Purchase orders are used whenever supplies or materials are purchased on credit. They are essential for securing large quantities of materials for specific phases of a project. In larger construction projects, a purchase requisition might be submitted to a general contractor or project manager, who then sends the PO to the supplier.

Typical PO Process

1. Identify Needs: Determine the materials, equipment, or services required.

2. Select Vendor: Choose a supplier that offers the necessary materials at an agreeable price.

3. Draft PO: Create a purchase order detailing the material specifics, quantity, price, shipment info, and timelines.

4. Send PO: Submit the PO to the vendor, who will then begin procuring the materials.

5. Receive Materials: The vendor supplies the order per the PO details and issues an invoice at a later date.

Benefits of Using Construction Purchase Orders

• Legal Protection: Provides a legally binding agreement and protection for both buyers and suppliers.

• Clear Paper Trail: Offers a reference for resolving disputes regarding price, shipment, or material quality.

• Financial Clarity: Assists with accounting, job costing, and financing by detailing transaction specifics.

Essential Elements of a Strong PO

• Unique PO Reference Number: For tracking and accounting.

• Submission Date: The date the PO is sent.

• Business Information: Addresses and details of both buyer and supplier.

• Shipping Address: Location for delivery or pickup.

• Detailed Line Items: Specifics of materials needed, including quantity, unit price, and total price.

• Terms and Conditions: Including timelines and delivery methods.

Example of a Purchase Order

An open PO showcases the efficiency of managing POs digitally. You can create and send POs to vendors with just a few clicks, making the process paperless and efficient.

A Better Way to Manage POs with Construction Management Apps

There are applications which simplifies the creation and tracking of purchase orders. It allows for paperless, professional, and efficient PO management, reducing the administrative burden and ensuring a streamlined process.

In conclusion, understanding and properly managing purchase orders are crucial for the success of construction projects. By using tools like QBO along with third party apps like Knowify ,Buildertrend or Maker's Hub, specialty contractors can enhance their PO processes, ensuring timely procurement and delivery of materials while maintaining legal and financial clarity.

Need help with setting up QuickBooks and getting the reports that shows where you are at all your jobs?

Email: info@paylesstaxes.biz