Purchase Orders – Why they are so important…

IMG_0856Most people when they start out in film are handed a PO book and never shown how to fill one in properly – nor does anyone explain what the PO’s are actually used for or why they are important. I hope to shed a little bit of light on this subject, once again in the hope that a few more people will get this right and slightly lessen the stress and aggravation in the accounts department (including my own).

I thought I would start with why they are important, as I know that for some people understanding why they have to follow a process makes them more likely to actually follow it…

Simply put a purchase order is a promise of payment for the supplier. This is why its good to give the supplier a copy (or to attach the email or quote where the supplier agreed to the amount). It sums up how much money is going to be paid in exchange for a good or service. In an ideal world this would be agreed upon well before the money exchanges hands. You will find that generally a PO book allows for at least three (sometimes four) copies of each PO. This is to allow for one copy for the supplier, one copy for you and one (or two) to be sent to accounts. You should definitely make a habit of handing over your PO’s as often as possible. Once a day would be great. They generally need to be signed before reaching accounts, but the sooner they get there the sooner they can be entered into the system.

As the purchase order acts as a promise of payment it can then be entered into the accounts system as an actual projected cost against a line in the budget. That way when the Producer and Production Accountant produce a cost report (this happens more frequently then you would think) they can more accurately gauge how much money they have left to complete the project. This is why everything needs to be recorded on a purchase order. If you make an agreement to pay for it, but its not in the system, there isn’t an allowance for it and the money may be spent on other things. This is obviously irresponsible, and is why completing all the paper work is important (of course we know that from time to time things happen, but the more you make it a habit to follow the process the less likely there is to be an occasion where a large payment needs to be made that no one was aware of).

Purchase orders are also very handy in a number of other ways. For example a purchase order needs sign off by the films ‘signatories’ (the people who have authorization to spend the money). The number of people required to sign off the expenditure will depend on the size of the film but will generally include the HOD, Production Manager or Line Producer, Production Accountant or Financial Controller and if its for a large amount the Producer. Going through this process allows every one of those signatories the chance to see what the money is being spent on, so they have an idea of whats happening, and can stop things early if they feel there is a better deal to be made or if something is no longer required.

The other way that is handy is for the accounts team. Invoices can be processed much faster when they match up to a PO. The reason for this is obvious, if the expenditure is already approved and entered in the system then no further follow-up is required. If an invoice doesn’t match a PO then we have to find out why. Sometimes this is easy – another day was added to the hire or a couple of extra items were purchased. This will likely be written as a question on the invoice that the HOD will need to sign off on. The reason it needs to be written on the invoice is so the signatories are aware of why the price differed from the PO and don’t need to track the people down themselves, the answer is right in front of them. If they are unhappy with the reasoning they can then follow-up, but mostly they just want to know that people are actually checking what they are purchasing.

Most suppliers that the company has accounts with will be required to supply a PO number on the invoice. If they don’t supply one the accounts team will refuse to make payment until one is supplied. Of course this means more work for everyone, so simply supplying the PO at the beginning makes things easier for everyone.

So in summary Purchase Orders are important for many different reasons. The sooner you get in the habit of doing them the happier the production as a whole will be…

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