In episode 6 of “Credit Talk with Lori,” hosted by Handle.com’s Lori J. Drake, CBA, Dana Petitt, Regional Credit Manager with Gulfeagle Supply, discusses the complexities and opportunities associated with managing purchase orders in the construction supply industry.
Purchase orders (POs) are critical in the supply chain. They serve as formal agreements between buyers and sellers. They outline the details of the materials or services required, their prices, and the terms of payment.
Effective PO management can streamline processes and enhance customer satisfaction, providing credit professionals with practical strategies to navigate their roles. This episode is a valuable resource for anyone looking to improve purchase order management and boost sales.
Understanding Purchase Orders’ Variability
Recognizing the variability in customers’ perception of purchase orders is crucial for effective management. For smaller customers, a purchase order might be as simple as a job name or number without a formal document. In contrast, other customers might provide detailed written instructions that require strict adherence.
Petitt notes, “For smaller customers, a purchase order really means ‘I want to give you a job name or a number, but I don’t actually have a document yet. I just want you to help me when you send out materials so that when I get your bill, I can look at it and go, Oh, I know what that’s for.'”
Tailoring approaches to meet different customer expectations is essential.
Effective Customer Segmentation
Categorizing customers based on their purchase order requirements allows for more tailored service. Customers using informal job names or codes require different handling than those needing detailed written purchase orders.
Petitt explains, “To other customers, it’s, ‘Hey, I really need you to make sure that you follow every single step that I’ve given you in my written purchase order.'” This segmentation enables credit managers to align strategies with each customer’s needs, improving service quality and efficiency.
Leveraging System Flexibility
A flexible system is essential for managing varying levels of purchase order complexity. Gulfeagle Supply’s system can track whether a customer uses a PO, lists authorized users and manages specific dollar amounts and required information based on transaction size.
Petitt highlights, “In our system, it will let you do as simple as clicking a box that says, ‘Does this customer use a PO? Yes or no.'” This flexibility ensures the system can accommodate diverse customer requirements seamlessly.
Ensuring Accurate Invoice Tracking
Accurate tracking and reconciliation of invoices are vital for operational efficiency. By hard coding the PO number for every order, the system ensures it follows the invoice for the project duration.
Petitt mentions, “We have the ability on every order to hard code that PO number so it follows that invoice for the life of the work.” This approach maintains accuracy and consistency in documentation, reducing the risk of errors and disputes.
Predefining Agreements for Clarity
Predefining agreements with customers ensures clarity and prevents misunderstandings. Walking through a customer’s purchase order sample helps verify that it meets agreed-upon terms and conditions.
Petitt states, “If the customer says, ‘I use written POs,’ it’s okay. I’m going to need you to send me a sample of your purchase order, and we will walk through that purchase order so that I know it specifies the terms of payment and that they meet what we’ve all agreed upon.”
Addressing discrepancies upfront and formalizing the agreement with a letter provides both parties with a clear understanding of the terms, preventing legal disputes down the line.
Handling Discrepancies Proactively
Proactively resolving conflicting terms and conditions in purchase orders is crucial for smooth business operations. Addressing disagreements before transactions occur ensures all parties are on the same page, fostering smoother operations and preventing misunderstandings.
Petitt advises, “When we go through those terms and conditions, if there’s any disagreement, we iron that out at the front side. We may have to modify a clause, take it out, we both have to initial off on it and say yes, we’re good with accepting.”
Daily Tasks of Credit Managers
Effective purchase order management involves several essential daily tasks
- Setting Up Notes and Reminders: Creating reminders and notes for branches to ensure the correct use of purchase orders, adapting to each customer’s needs. Petitt adds, “We can set up notes and reminders for our branches to ensure they use the correct purchase order for each customer.”
- Tracking Authorized Users: Maintaining an authorized list of users for each customer to streamline approval processes and ensure compliance with set limits. Petitt explains, “Does this customer have an authorized list of users? We can actually put in people’s names, put in dollar amounts that say, ‘Hey, if it’s this amount of money, I only need certain information. If it’s more money, we have to go to another step.'”
- Customizing Approval Levels: Implementing different approval steps based on transaction amounts to ensure higher scrutiny for larger amounts.
- Ensuring Accurate Documentation: Regularly updating and verifying that purchase orders and invoices match predefined agreements to avoid payment issues. Petitt says, “We tend to like to make payments easier for customers, and when they see some of the purchase orders, they look down their statement and they know instantly what the material is for.”
Key Takeaways
- Recognize Variability: Understand that purchase orders mean different things to different customers and tailor your approach accordingly.
- Segment Customers: Categorize customers based on their PO requirements to provide customized service.
- Leverage Technology: Use flexible systems to handle varying levels of PO complexity and ensure accurate tracking.
- Predefine Agreements: Walk through purchase order samples with customers to ensure clarity and prevent disputes.
- Proactively Handle Discrepancies: Resolve conflicting terms and conditions before transactions occur.
- Daily Management: Implement daily tasks such as setting up reminders, tracking authorized users, and customizing approval levels.
Watch more Credit Talk with Lori on the Building Blocks Channel.