Introduction
The purpose and function of Purchase Orders seem self-evident, and the BIS Purchase Order module is very useful for most customers. However, most users do not consider the three unique functions that Purchase Orders serve, and how they relate to each other. In BIS, those three primary purposes are:
- Purchase Orders are contracts with the suppliers for goods other than those covered by Subcontracts.
- Purchase Orders provide the Net Commitment data for Job Cost reports.
- Purchase Orders provide template data for the ensuing Invoices.
Purchase Order data flows to Accounts Payable Invoicing, and optionally to Job Cost, but does not receive data from either.
1. Purchase Orders as “contracts” to Suppliers
A Purchase Order, especially when printed and mailed to your suppliers, represents the understanding that you both have as to the item(s) quantity, pricing, description, part number, billing, shipping, along with other details about the order.
2. Net Commitments
BIS tracks Net Commitments for three types of pending transactions:
- Purchase Orders
- Subcontracts
- In-process payroll
A number of BIS reports show the Net Commitments on a job. (See the illustration on the next page.)
As invoices are entered for the Purchase Orders or Subcontracts, the Net Commitments for those items are reduced while the Actual Cost for those items rises.
Once a payroll is processed (checks printed and payroll saved), the amount represented by its entries is moved from Net Commitments to Actual Costs also.
3. Invoice “Template”
When users go into Invoicing, they are offered the ability to enter (search or lookup) the PO number. This entry allows them to edit the detail of the merchandise and invoice they have received.
The data from the Purchase Order can be loaded into the Invoice.
The data then populates the appropriate fields in the vendor invoice form, and only needs editing of quantities.
However, it should be noted that an invoice can also include items omitted from the Purchase Order. Such items may include new line items, perhaps added verbally to the original PO, previously undefined freight or other handling charges, etc.
Audit Controls and Limitations
Like other underlying BIS transactions, a Purchase Order cannot be changed once a subsequent transaction (like an Invoice) has been applied to it. Thus, a PO can be re-opened, changed, or deleted as long as no invoices have been applied to it. If a change is needed to a “used” PO, a new PO, possibly with a similar number, must to be created.
Alternatively, if there are unknown items for the order, such as Freight or Handling Charges should be added to the Invoice.
Summary
Purchase Orders send data to AP Invoicing, and optionally to Job Cost. Purchase Orders serve three valuable purposes. They are agreements or contracts for materials or services not covered by Subcontracts; they provide one of the three committed cost data to job cost; and they provide template data for their related invoices.