Managing the rising cost of construction materials is paramount to running a successful construction project of any size. By helping you to determine the cost of a contract before the work is completed, a construction purchase order is the vital first step in tracking costs and billing.
Purchase orders are one of the best accounting practices for managing goods and services because they provide information about existing costs, upcoming expenses and committed costs.
Let’s take a closer look at how they can help construction firms control costs.
How does a construction purchase order work?
A construction purchase order is a legally binding document that outlines the terms and conditions of purchase. These include things like the cost and quantity of specific items purchased, delivery dates and terms of payment.
Construction companies and contractors use purchase orders to track the entire costs of a project, including billing and transactions.
Purchase orders allow the user to view existing and upcoming costs, track quantities and ensure material supply before the start of a project, to ensure stock availability for its duration.
Problems associated with manual purchase order processes
Many construction companies and contractors still rely on spreadsheets and disconnected construction cost-accounting processes.
Manual purchase order processes often have serious limitations, including:
- Risk of human error – such as relying on out-of-date details, double-keying and losing or overlooking valuable information
- Missed cost-optimisation opportunities – without knowing the annual spend on everyday materials (like sand, timber and bricks) and with individual suppliers, your Purchasing team may not succeed in negotiating the best prices from their most reliable suppliers
- Inefficient processes – producing month-end cost-value reconciliation reports can be an unnecessarily lengthy and complex task if your Finance team has to gather data manually from multiple and varied sources
- Poor visibility – if purchase orders, goods received notes and invoices are all processed independently and recorded on different systems, your Accounts Payable team will struggle to clarify which goods and invoices are outstanding.
The benefits of integrated purchase order software solutions
The good news is that construction-based software solutions are changing the game.
Using the right construction purchase order software, you can:
- Improve accuracy – figures are all pulled directly from the system, rather than having to be gathered from spreadsheets and other sources. There’s no rekeying involved and there’s no risk of figures being mislaid, overlooked or double-counted
- Drive a hard bargain – when annual spending figures (by product, material, supplier, region, etc) are available at the touch of a button, your Purchasing team will be better equipped to negotiate prices for the coming year based on bulk ordering and call-off agreements
- Take the stress out of month-end reporting – with an integrated system, your monthly cost-valuation reconciliation reports can be generated automatically within a matter of minutes
- Streamline your Accounts Payable process – provide complete real-time visibility regarding purchase orders raised, goods received and invoices awaited.
Track the cost of construction materials with a purchase order system
The rising cost of construction materials is causing difficulties across the sector. Now, more than ever before, you need
to have a firm grasp on material costs; plan new purchases quickly as stock is used, and know what materials you have on hand.
Leveraging a purchase order system allows you to track and maintain your material costs. This in turn enables you to forecast and plan more accurately, and save money by reducing overruns and delays.
Using a construction purchase order system makes it easier to track the cost of materials more accurately and efficiently, helping you to stay on time and within budget.
Make profitable business decisions with accurate construction cost accounting
Your construction cost accounting systems should enable you to provide accurate estimates and up-to-date pricing information. Accuracy is key – inaccurate information leads to poor decision-making.
To obtain accurate and timely cost information, modern software solutions track the orders you place, meaning that you can view and manage orders by status. You can also manage stock requisitions easily and automatically update them in the contract.
A cloud-based construction purchase order system helps connect the accounting and project management workflows with up-to-date prices for real-time information. The more accurate and current the data, the better the decision-making by stakeholders. And better decisions should result in improved profits.
Learn and plan for your profit using Purchase Order Software
More and more construction companies are now taking the time to incorporate a system that provides reports, insights and background information on material costs. Working with realistic estimates enhances teams’ ability to plan for upcoming costs.
Accurate, up-front cost estimation is an important way to manage costs. By implementing tools like RedSky’s Construction Procurement Software, you will get a precise analysis of costs to contracts. Take the first step in setting yourself up for profitability through the enhanced materials procurement solutions that are available with RedSky. Our solutions also come with training and advanced support to make sure your entire team extracts maximum value from your construction purchase order software.
If we’ve whetted your appetite to learn more about how RedSky’s construction Purchase Order Processing and Procurement Software solutions can help you control costs and improve your profitability, please feel free to request a demo. You can also get in touch through our contact form or by giving us a call at +44 020 3002 8600.
