Ken Rock

Company: Auto/Mate Dealership Systems

Ken Rock

Auto/Mate Dealership Systems

Jul 7, 2020

Rock’s Rants: Purchase Orders

Does your dealership have a purchase order (PO) system? Often when I ask this question in dealerships the answer is, “Sort of.” When I dig deeper, I discover this could mean that POs are opened but never really closed out, or they’re attached to things but nobody has verified them. The worst-case scenario is when repair order (RO) numbers are used instead of PO’s.

If this sounds like your dealership, let me explain the error of your ways.

One time while I was at a dealership, I saw a NAPA Auto Parts truck pull up. The parts delivery guy went straight into the shop to a technician’s bench. He handed the tech the part and a slip of paper and walked away. In this particular instance, it turned out the tech was putting the part in his own car, and he threw away the invoice. A purchase order was never issued for the part. The tech simply gave NAPA a RO number. Not even a real RO number, but a 5-digit number that he made up that he knew would work. And he knew the NAPA guy so he told him to just deliver the part directly to him.

I’m not saying this happens a lot but it could happen if you don’t have a solid PO system in place. For one thing, why wasn’t there a PO? Why did the NAPA guy deliver the part to the technician instead of to the parts counter? Why did the NAPA guy hand the invoice to the technician? None of these things should ever happen.

Dealers, if you want to have a really good handle on exactly how much money is going out the door and what it’s being spent on, you need to have a PO system in place. It’s not just the parts department where mistakes happen. In sales, purchases are made from vendors and the salespeople will just use a deal number or put their initials on the invoice.

The problem is, monthly invoices from vendors come into the office and they get paid. Accounts payable is supposed to verify every single charge, but do they? Often there’s no purchase order attached to the invoice. How do you know the invoice is legitimate? How do you know if the charge was authorized, and by whom? Accounts payable might place the calls to verify charges, but not all calls are returned. As the invoice due date approaches, it’s easier to just pay the invoice. Office employees are busy, after all.

Here are best practices for a PO system:

Purchase orders should only be issued by a department manager or assistant manager. No matter who issues them, someone else should authorize the PO with a signature. I recommend this because a PO is basically like a blank check. You really need to know who is signing your checks, therefore an authorized signature is required on every PO.

Purchase orders should always include the correct dollar amount for the item purchased. If you don’t know the amount, the amount should ALWAYS be $10,000. If it’s $0 the amount may never get filled in. If it’s $10,000 someone will be forced to adjust the amount before it’s processed.

Printed copies of purchase orders should always be given to the vendor, in addition to emailing it to them.

When the vendor sends an invoice, the department manager or assistant manager should always attach a copy of the PO to the corresponding invoice before turning it into the accounting office.

Require that all parts must be delivered to the parts counter, not directly to the service bays.

Send a certified, registered letter to every vendor you work with that states that every order must have a signed PO attached to it. Ask them to retain copies of all your purchase orders. Also let them know the series of numbers that every PO should have; e.g. all of our PO’s start with the number 567-. Then let the vendor know that your dealership will not pay any invoice that does not have a valid PO number on it. It can’t be Jim’s initials. So, then it’s up to the vendor to say to Jim, sorry Jim, I need a PO number.

Before paying an invoice, Accounts Payable must match every single charge on the invoice with the corresponding purchase order. If there’s no purchase order, the invoice doesn’t get paid.

The first time a vendor doesn’t get paid because there’s no PO number on their invoice, or they didn’t require a PO, the problem will be fixed immediately.

That’s how you implement an efficient PO system, so you can keep better track of your expenses, reduce the chance of theft and reduce unnecessary, wasteful spending.

Ken Rock

Auto/Mate Dealership Systems

Customer Care Manager

901

2 Comments

Morgan Hardy

Phone Ninjas

Jul 7, 2020  

When our new service manager took over, it took him weeks to go through all the open PO's that had been sitting for weeks/ months. It was a mess when they weren't being handled properly. 

Ken Rock

Auto/Mate Dealership Systems

Jul 7, 2020  

Morgan that is what happens when someone does not administer or manage the PO system. This should be controlled by each manager of each department and tended to on a weekly basis. I am sure that the service manager in place now will keep it updated. Thank you for reading and commenting on my blog. 

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