Why Purchase Orders are Important
Many businesses unwisely forego purchase orders because they perceive the paperwork to be a hassle that slows things down, or simply because they already have a working relationship with vendors.
Whether you are a freelancer or an enterprise, Purchase Orders are a crucial part of accounting. If you have wondered, whether your business really needs a purchase order for every little thing, it is a resounding Yes, it does and here is why!
You ask for 50 pens and the vendor sends you 30 “as agreed on the phone” (which you never did). You agree on a certain price but he charges you more , “since the prices have gone up”. Sound familiar? Never again with a PO.
A purchase order provides legal clarity and concrete instructions for the seller, as well as a concrete paper trail that can be used as a point of reference for when things go wrong.
If your organization is currently using a paper-based procurement process, you are likely creating excessive documents. Most companies will process up to seven documents during a purchasing cycle. This includes requisitions, purchase orders, quotations, order acknowledgments, advice notes, goods received notes, packing slips, and invoices. That’s a lot of documents to produce – and keep track of – for a single purchase.
As much as good record keeping is vital for effective and efficient purchasing and procurement, there are problems with paper-based records. Paperwork can easily be lost, damaged, or accidentally destroyed. With paper, it’s often hard to spot duplicate requests, purchases, or invoices, or missed transactions – all of which can cost your company time and money. Using paper also requires an efficient and regularly updated filing system which consumes space and man hours in order to work effectively.
What PO’s Accomplish
SUB-CONTRACTING - Sub-contracting out certain jobs for your business is more important today than ever. Businesses can no longer afford a large staff due to payroll expenses, benefit costs, insurance costs and even the floor space to house staff. Using 1099 contractors is one of the best ways in today's world to reduce expenses tremendously. Because the sub-contractor takes care of his own insurances, taxes, supplies and more this saves your business thousands of dollars each year. You only pay for the services needed. Using sub-contractors where ever possible, including your bookkeeping/accounting department, equals huge savings for your company!
IRS definition for Independent Contractors:
"You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed."
Using subcontractors that have their own businesses insures you are in compliance with the rules of the IRS.