Should You Use Purchase Orders or “Save Time?”
For your accounts payable, or determining how much you’ll owe your parts suppliers, there are typically two routes you can take:
- Wait for the parts bills to come in and trust that you’re being charged the correct amount, or
- Create a formal purchase order each and every time you order parts from a supplier.
The advantage of going with the first route is that you save a little bit of time; there’s no second step of reconciling the part you need to purchase on a purchase order. But the cons far outweigh this advantage—because this is where shops can start to lose money.
For example, your ROs may indicate that you have a 30% profit margin on parts, but if you don’t accrue your parts bill, you won’t know for sure if that’s the case until the parts bill hits your account. Suddenly, when the money gets taken out, your margins are razor-thin.
So, what happened?
Did a supplier charge too much? Were you double-charged? Was an unauthorized person ordering parts on your account? Was there theft?
It’s hard to tell if there is no paper trail or purchase order for you to look at.
If you’re not paying attention to your parts orders on the accounts payable side, you could be losing money, and it will typically take a large missing chunk of change for you to realize that something is wrong. Without a paper trail, figuring out the problem is not only difficult but also extremely time consuming. Once you notice that there is a loss you can’t account for, all the “time saved” by skipping the purchase order step comes back in the form of time spent trying to figure out the issue.
By reconciling your parts orders on both repair orders and purchase orders, you can easily check to see what’s going on, protecting your shop from incidents where you are losing money due to overages, slip-ups, theft, and overcharges.
How to Build a Better Parts Ordering System
When it comes to tracking parts on repair orders and purchase orders, consistency is key. Shops that have strong, consistent processes and procedures—and follow them every single time—rarely have issues with leakage and theft; they instill habits in their team to keep careful track of all parts.
As long as your shop has a repeatable process for adding parts to repair orders and putting in purchase orders, you will be able to quickly identify any issues as soon as they crop up. Every service advisor and employee that orders parts and builds repair orders for customers should use the same method for filling out repair orders, creating purchase orders, and inputting this information into your shop management system and accounting system.
Create a standard process for each of the following:
- How jobs get posted
- How repair orders are built
- How repair orders are approved
- How parts orders are posted
- How purchase orders are written and sent to suppliers
- How purchase orders are approved
- How parts and purchase data get analyzed
Instill Parts Ordering Best Practices with Tekmetric
Standard procedures for ordering parts and creating repair orders are built into Tekmetric. We give shops the tools and guardrails needed to effortlessly track parts throughout each step of the repair process.
From our intuitive repair order builder to our integrated parts ordering and inventory systems, we aim to align your team so that no money slips through the cracks. And our industry leading analytics and reporting tools allow you to keep track of your shop’s financial history in realtime.
This article was written with the guidance of automotive repair industry
CPA Hunt Demarest of Paar, Melis, & Associates, P.C.