I'm not sure when it happened, when POs became a supportable answer to potential problems in accounts payable departments. Although they are essential in conducting business, as a control mechanism for accounts payable errors, they fall short in many different ways. In our experience, 53% of verified duplicate payments have a PO attached to it - clearly identifiable proof that POs do not prevent problems down the line in accounts payable.
So what can be done to fix this? Primarily, the first issue becomes to not have an over-reliance on POs. To see POs as what they really are: a document between buyer and seller for the agreed purchase of a certain good or product. By the time the PO enters the realm of accounts payable, in most ways, they have already served their purpose. The purchasing department has issued the PO, received the order, inventoried the receipt of goods and forwarded the invoice to the A/P department. When done properly, this is the end of the life of a PO; it has now served its purpose and had very little impact on the A/P department.
When used improperly, the PO becomes almost meaningless. A trend has emerged, especially since Sarbanes Oxley, in the overuse of blanket POs and after the fact POs. Minimizing or eliminating the use of blanket POs can significantly improve the reliability of valid POs. It can even improve relations between departments, freeing up staff in both the purchasing and the A/P department from tracking down or researching POs that result in duplicate payments. When these situations occur, fixing them requires interaction between departments which can sometimes cause friction, especially in today's demanding corporate environments where time is at a premium for everyone.
Streamlining and resolving problems that result from POs is important and cannot be ignored in the larger scheme of things. Purchasing source documentation is crucial inside any organization for a variety of reasons but very few of them actually serve the accounts payable department. Over time, many find that improving how and when POs are used does a great deal more for the inventory side of their business and the resulting impact on accounts payable more of a trickle-down effect. In the best scenario, when PO procedures are tightened and improved within an organization, everyone wins by default - yet within A/P departments it happens almost invisibly.
Karl Andersson has devoted his career to helping organizations improve their business processes. For 15 years, he has worked with multitudes of Fortune 500+ companies as the CEO of Technology Insight. Before this, he spent 10 years working in the audit and consulting sectors, which included large international projects in both Europe and Asia.
Karl brings a combination of industry expertise and real-world experience. The diversity of his clients has allowed him to understand a variety of industries, and the unique challenges that each of them face.