Page 71 - Accounting Best Practices

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Accounts Payable Best Practices
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3–35 USE BLANKET PURCHASE ORDERS
One of the most time-consuming parts of the accounts payable process is match-
ing supplier invoices to purchase orders to ensure that all payments have been
authorized. This task is a difficult one if there are a multitude of supplier purchase
orders. In the typical company, there are hundreds if not thousands of open pur-
chase orders at any time; it is standard practice to issue a separate purchase order
every time an item is purchased. However, by shrinking the number of purchase
orders to be matched, one can reduce the workload of the accounts payable staff.
A best practice that vastly reduces the number of purchase orders is blanket
purchase orders. These are long-term purchase orders, typically extending for a
one-year time period, which cover all of the expected purchases from a supplier
for that entire time period. By using blanket purchase orders, the accounts
payable staff can continually match to the same purchase orders for the entire
year, reducing the number of purchase orders that must be kept on hand.
This best practice is a simple one to implement from the accounting perspec-
tive. There is no change in the way the accounting staff stores or matches blanket
purchase orders. They will continue to staple the purchase order to the invoice
and move it on for further processing. The only difference is that because the
amounts on the blanket purchase orders are so large, they will hardly ever be
equaled by a single supplier delivery. The accounting clerk must instead make a
facsimile of each purchase order and staple the copy to the supplier invoice. This
is a minor change and will be easily accepted by the accounting staff when they
see that, in exchange, the volume of purchase orders has dropped significantly.
Though this seems like a best practice that should be implemented at once
due to the obvious benefits, one should consider the problem of working with an
extra department to ensure that the new system works. The problem with a blan-
ket purchase order is that it cannot be implemented without the cooperation of
the purchasing staff and the suppliers. Since there are many more entities
involved in this implementation, it is no surprise that relatively few companies
have implemented this best practice. To ensure that blanket purchase orders are
used, one must discuss the benefits of the system with the purchasing manager
(who will see a significant decline in paperwork as a result of using blanket pur-
chase orders). The purchasing manager must buy into the concept because this is
the person who must in turn sell the concept to suppliers. Another problem is that
a typical company has so many suppliers that it takes a substantial amount of
time to implement blanket purchase order agreements with all of them. Instead, it
is frequently easier to either pare down the number of suppliers or just implement
blanket purchase orders with the 20 percent of suppliers with which a company
typically does 80 percent of its business. Either approach will allow a company to
enter into blanket purchase orders with suppliers that will substantially reduce the
total number of blanket purchase orders.
Cost: Installation time: