At our Farm Office Plus workshops a few weeks ago we had a good chat about purchase control systems. Basically, making sure that everything that is put on a supplier's account that you receive a bill for is correct.
This is more of an issue for some farm businesses than others. It’s generally not an issue for farms where one person controls all the purchasing and also pays all the bills.
The ones that seem to have the most trouble with it are larger businesses with staff and family members all making purchases.
The other people that have trouble are those who may have relatives or are in the district with the same surname or operate under a few different business structures that are easily confused.
To only pay bills that are related to the farm business, not those that may belong to another unrelated business;
Speeding up invoice checking and payments;
Avoiding fraud or unauthorised purchases;
Managing cashflow with larger purchases; and,
Keeping track of what has been ordered, especially when more than one person is ordering, or things take a long time to come in.
In the corporate world, individuals will generally have a purchasing limit. For example an admin person may be able to make purchases of up to $1,000, which will cover general stationery. Anything higher than this may have to be authorised by a more senior staff member who has a higher limit. Other staff members might have authority for a certain type of purchase, but not others. So a feedlot staff member might have authority to order all animal health products as needed, but cannot purchase anything else without permission. Clear guidelines are best for everyone.
Purchase orders are generally required for purchases over a certain amount. A purchase order is a document issued by the buyer, sent to the supplier indicating what is to be purchased (usually quantities, sometimes prices as well). Purchase orders have a unique number, so the transaction can be tracked through both the buyer’s and the seller’s systems. Xero, and many other accounting programs have the ability to generate purchase orders. For those with xero have a look here: https://central.xero.com/s/article/Create-purchase-orders-AU.
There are also standalone apps, ordering functionality within other programs you may use or manual docket book solutions.
Think about what you are trying to achieve?
If you are trying to make sure suppliers in town bill the right business, consider sending them a letter or an email with your trading details, names and photos to make it easy for them. It’s a great idea if your business or theirs changes hands or they or you have new staff. If you use Canva, have a look at this template I have mocked up. You can change the wording and the photos to suit your business.
Check out this AgriFocused Canva template that can be modified to suit your business.
Within your own team, make it standard practice that anyone purchasing anything on account give their name and the full business name, even if they know the person in the shop well.
Some small businesses will use names in lieu of purchase orders, so purchases can be chased up if needed. A business card with the trading details on it can be useful if you have casual staff that are picking things up on short notice.
READ MORE: Making the most of your calendar system
If you are trying to better manage cashflow, it’s really about making sure that the person who pays the bills knows what is coming. Bags of dogfood and a few plumbing fittings are irrelevant, its about the big things like bulk fuel, fodder, replacement livestock, fertiliser and large chemical orders.
Think about using an app to make a purchase order (you may or may not choose to send it to the supplier, they can just be used internally) or just using a text or a WhatsApp group to keep everyone that needs to know, in the know.
Think about what suppliers or type of goods your system needs to apply to?
Perhaps you have just one or two local businesses where misallocation of invoices is an issue. It’s OK to set up a purchase order system just for this supplier. If it keeps things simple you can cancel your account and move to credit card purchases only.
What about online purchases?
Online purchases can be problematic for a few different reasons. You may not always get a simple PDF tax invoice emailed to you, the credit card reference may bear no resemblance to the business name you thought you were purchasing from and what you ordered may never arrive. Think about what you might need to set up for online purchases. It does not have to be complicated, it might be a note in a diary or a simple handwritten list to help you keep track of them.
As with any change, think it through and discuss with those impacted, there might be some other great solutions that will suit you and yours better.
Carmen Quade runs AgriFocused, a rural-based business providing online and face-to-face training in farm finance and farm business administration. Check out their online courses at www.agrifocused.com.au/training/
