Ask anyone who sells anything what their debtors days figure is, and they will know (even if they don’t know that term)– getting paid for the work you’ve done is key to any business, large or small and, you also need to be aware of how long it takes you to pay others.
Knowing what cash is flowing in and out of a business is critical to planning and management.
The Prompt Payment Code is a Government initiative to encourage big businesses to pay their suppliers, particularly the smaller ones, within 30 days.
Yet, the small to medium businesses can be just as big a part of the issue as the big ones, especially if there’s a long chain, common to some services and industries. As a responsible customer, you need to ensure you pay your suppliers on time.
Do you have a Purchase Order or contracting system?
Are you sure that's what we ordered?
The first part of any supplier system is the contract or order:
If your business orders goods or services from suppliers, you need to ensure that the right items are ordered, for an agreed price, with agreed invoicing and payment terms.
This is why a good Purchase Order system is essential.
Especially if you have more than one person involved in placing and checking orders, be clear as to what you want them to do, so that you know you are ordering the correct items, with agreed terms.
As well as advising your staff of the agreed way to send orders to a supplier, be sure to let the suppliers know what your process is, so they are only processing correct orders from you.
This will minimise unnecessary costs, and reduce wasted time chasing unauthorised orders.
What's the right process for purchase orders, for smaller businesses?
The right process will depend on the size of your business and the volume of orders.
You should consider each of the following before creating a purchase order process. These are the key elements of a good Purchase Order system:
· Who in the business can place an order?
· How do you want it recorded? (Specific spreadsheet, or list in accounting system, or by email, with clear terms).
· Who in the supplier's business can accept the order? (How do you communicate who these people are internally?)
· How do they want it recorded? (Do they use a form, their website, a particular email?)
· Are there any limits on the size of order, meaning that “larger” orders have to be counter-signed by someone else?
· How does the person who will process your supplier invoices know when the order has been placed? (When Your bookkeeper/VA/PA receives an invoice how do they know it’s ready to be processed/paid?)
In many businesses, an email from one person in the customer’s business, to one person in the supplier’s business, with a copy to the bookkeeper is sufficient. This step is important,
because you do not want to be in the position of having to make a payment for something you believe should not have been ordered.
Having clear, simple consistent processes means your business runs better. Good Purchase Order systems, improve cash flow management; making your business more profitable.
Project Management is a specialist skill which improves your profitability!
"If you are considering implementing a new Purchase Order Process and these things seem confusing, this is the time you need someone like Sue Cohen, because setting up & refining processes is her expertise, she knows exactly what elements are essential, how to stream line processes to avoid wasted time, and creating processes which work for a variety of businesses sizes, shapes and models.
When it comes to processes, one size does not fit all; Sue’s
expertise will help you create profitable processes which will support your business growing. "
Claire Boyles, Success Matters.
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This is a Guest Blog Post by Sue Cohen, an experienced Project Manager & Process expert.
Sue Cohen is the founder of Sue Cohen Ltd, providing project management services to the BEST professional service firms in and around London and the Home Counties.
She is a highly experienced Project Manager and Accountant, and has worked with businesses to review their processes, systems and people structures; set up new outsourcing models; implement new systems