By Beau Engman, CEO, BuildTopia
Lots of builders manage costs by coding invoices to jobs as they come in with little or no reconciliation to budgets much less purchase orders. By doing this, they never have a clear view of their total cost until the job is done. This was good in 2005, but not in 2008 and beyond. Builders spend considerable time reconciling invoices, managing approvals of invoices, payments of invoices, and all from, and by, a stressed out AP department. In summary, living off the invoice has the following challenges:
- Blurry picture of costs (you can’t see what has yet to be invoiced) and corresponding margin.
- Labor intensive AP Process
- No way of measuring and improving bidding, contracting, and purchasing performance.
- Very difficult to get consistent cost data that can be compared across different jobs.
Solution 1: Pay off Purchase Orders. Tell trades (subs) there is no longer a need to send invoices.
You do not need a fancy software system to do this. In the 70’s and 80’s people had binders where they hand generated purchase orders on 3 part paper and kept one of the copies in their binder. Having a purchase order ensures you agree on the scope and the cost before you commence work. If you have a purchase order for everything that you need to buy, then there is no need to have trades send invoices, you can just pay off the po’s as the work is completed. By utilizing the discipline of purchase orders, you have an accurate picture of all your committed costs (open and approved purchase orders). Software makes it even easier. This is not a pipe dream, it’s a decision.
If that is too much for you and you think you need an invoice, here is another way.
Solution 2: Have trades print their invoices from the vendor site from approved purchase orders. In this manner, any dispute about what can be invoiced is handled in the field between trade partner and the project manager approving purchase orders, not the AP department. Doing it this way also ensures no variances, and all numbers will reconcile perfectly.
Beau Engman is the CEO of BuildTopia, an international, widely used, comprehensive residential construction management system. www.buildtopia.com