A purchase order (PO) is a crucial part of the procurement process for construction projects. A PO runs smoothly when all necessary materials are delivered on time and in order. This prevents misunderstandings that lead to disputes and delays in the project timeline. Not only does a well-run PO make everything more organized, but it also leaves a paper trail to track expenses.
A PO is a legally binding agreement that a buyer uses to request goods or services from a seller. Purchase orders include a tracking number and specific product details, such as the price and quantity ordered.
In residential construction, purchase orders are used by builders and remodelers to request materials or services for a project from third-party vendors, suppliers and subcontractors. A detailed purchase order defines the scope of work, price and terms of the expected materials or services.
Why are purchase orders important in residential construction?
Depending on the size of the company, builders and remodelers are often juggling a number of construction projects at the same time. Builders use purchase orders to stay in touch with subcontractors and other partners throughout the building process. There are a few main reasons builders should have a system for writing effective purchase orders.
1. Commit trades to work
As a contractual document, a signed purchase order commits a trade partner to a defined scope of work at a set price. This written contract serves as valuable documentation to ensure trade partners complete the required work and understand expectations.
2. Eliminate surprises
When there’s a written document that details what a subcontractor or supplier has agreed to do or provide, the builders have records to compare with incoming bills. If both parties understand and approve the price for the job, it eliminates uncomfortable conversations and sticker shock.
3. Protect the project’s bottom line
A purchase order plays an important role in job costing. By understanding what bills and expenses will come in the door before they arrive, builders can properly predict their bottom line. Builders document any changes throughout the project with a variance purchase order that shows how costs change when the project is modified. A variance purchase order is used when there are unforeseen changes in the project.
How do builders and remodelers write purchase orders?
There are many different types of building companies in residential construction. When it comes to writing purchase orders, various methods and strategies exist to maximize efficiency and automate the process.
1. Manual methods
A printed-word document that lists out the necessary purchase order details and is signed by the subcontractors satisfies some fundamental elements of a PO. Yes, this manual method does the basic job of getting a purchase order started; however, there are risks by not having a digital backup.
When using paper documents, builders and remodelers face the danger of losing this important information or not having it in crucial moments. Digitizing purchase orders in a construction project software solves many of the problems that come along with handling paper documents.
2. Purchase order software
Small businesses that work with suppliers are required to have automated purchase ordersoftware. While many of these tools may pull other project financials – such as estimates, invoices and billing – they fall short of fully integrating all project details. A purchase order impacts and ties directly to subcontractor billing, client selections, the project timeline, scheduled tasks and financial reporting. So up your tech game and integrate purchase orders into your full company picture with a smart construction management software.
Buildertrend’s platform is a financial management powerhouse for building construction companies. In the same program, a builder can write estimates, invoice clients and send purchase orders to subcontractors. When sending a purchase order through the software, a builder can send emails to subcontractors about the materials and services needed for a project. Having communication tied directly with project documentation builds out the foundation of a successful project.
How to improve your construction purchase order process
The role of construction software is to speed up workflow and reduce human error. Builders can create and manage purchase orders electronically by setting up automated purchase order approval workflows. Simply create a purchase order, and the system will route it for approval from project stakeholders. Automating these small tasks will make the project run along smoothly.
Standardize purchase order templates
Using standardized templates helps maintain consistency and professionalism. Buildertrend’s software offers customizable templates that you can save for your next project. You’ll never need to start from scratch again. If you frequently order a certain type of material, reduce the time it takes to manually input details by using an old template.
Centralize vendor information
Store vendor details, contact information and previous purchases right in Buildertrend. With this feature, you can quickly find and contact vendors or track past orders. You’ll have access to all historical data on what you paid for certain construction materials and how long it took them to arrive to help inform your future ordering choices.
Leverage supplier relationships
Building strong supplier relationships may result in better pricing and terms. When you have a strong rapport with your suppliers, they’ll be motivated to quickly fill your order requests. And when you pay on time and submit organized purchase orders, a relationship of trust can grow. You can also use the software to track poor supplier performance to be sure you routinely only work with your preferred vendors.
Monitor and analyze purchasing data
Monitoring your purchasing data helps identify construction billing issuesand possible cost-saving opportunities. Consider areas for improvement and track your purchasing patterns. Could you better order in bulk to prevent overspending and optimize cost saving? Analyzing purchasing data will give you important ordering information.
Use electronic invoicing and payment
If you’re looking for construction invoices made simple, adopt electronic invoicing and payment methods. They’ll speed up transactions and take away the paperwork. With Buildertrend, you can review invoices electronically and send payment. This ensures timely payment – which adds to that trusting supplier relationship – and avoids delays on your end.
Create and manage purchase orders with Buildertrend
Streamline the creating and handling of your PO process by using Buildertrend.
Looking to make purchase orders easier and ensure precise financials? Buildertrend’s tools provide the solution to help you reach these goals.
Buildertrend’s PO software is designed for builders to manage projects in one location with accurate job costing, clear communication and organized project management.
Schedule a demo today to see Buildertrend’s solutions for managing purchase orders.
Yes, a purchase order is generally considered a legally binding document in commercial transactions, including those within the construction industry. When a buyer issues a purchase order to a seller (such as a general contractor to a supplier or subcontractor), it serves as a formal legal contract outlining the terms, deliverables and conditions of the purchase.
Absolutely, tracking purchase order numbers for future reference is a crucial practice in the construction industry (and in most business operations). Tracking purchase order numbers is essential for maintaining organized and transparent procurement processes, financial management and regulatory compliance within the construction industry.
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