Purchase orders for small contractors, explained

A purchase order is a written record of what you ordered, from whom, at what price, and for which job or location. For a small contractor, the value of POs is simple: you can check the supplier's bill against what you actually ordered and received, and you can see what each job really cost in materials.

You don't need a purchasing department. You need a PO number on every order above a certain size, a habit of receiving against it when the materials arrive, and someone who matches the bill before it's paid.

Does a small contractor really need purchase orders?

Not for every box of screws. But POs start paying off once any of these is true:

More than one person orders materials
You run accounts at several suppliers
You order materials for specific jobs, like equipment or special-order fixtures
Supplier bills arrive weeks after delivery and you struggle to match them
You want to know whether a job made money

Many contractors start with a rule like "a PO for anything ordered for a specific job, and anything over a set dollar amount." Small, routine restocks of truck stock can follow a lighter process.

What goes on a purchase order?

A useful PO has:

A PO number. Unique and sequential, like PO-1042. Give it to the supplier so it appears on their invoice.
The vendor, with your account number if you have one.
The date and expected delivery date.
Where it's going: the shop, a specific truck or a job site.
The job it's for, if it's for a specific job.
Line items: part number, description, quantity and the unit price you expect.
Totals.
Notes: delivery instructions, contact on site, substitutions allowed or not.

The expected unit price is important. It's what you'll compare the bill against later.

How does the PO process work, step by step?

A practical flow for a small shop:

Draft. Someone creates the PO with the expected prices. For job-specific orders, this often happens when the customer approves the quote.
Approve, if needed. Many owners approve POs above a threshold themselves.
Send. Email, call or hand the PO to the supplier. Record the date it was sent.
Receive. When materials arrive, check them against the PO line by line and record what came in.
Match the bill. When the supplier's invoice arrives, compare it to the PO and what you received.
Pay. Only after the match. Note any differences and resolve them with the supplier.

Accountants call steps 4 through 6 a "three-way match": the order, the receipt and the bill all agree.

How should you set up your vendor list?

POs work better when your vendors are set up once, cleanly. For each supplier, keep:

The company name exactly as it appears on their invoices
Your account number with them
The contact for orders and the contact for billing questions
Their payment terms, such as due on receipt or net 30
Notes on delivery days, minimum orders and who to call when something arrives damaged

Payment terms deserve special attention. If one supplier gives you 30 days and another wants payment on delivery, that affects your cash flow on every job. Knowing the terms when you place an order helps you plan when the money goes out. Review the list once a year and retire vendors you no longer use, so new orders don't go to an old account by mistake.

How do you handle partial deliveries and backorders?

Suppliers often ship part of an order now and the rest later. Record exactly what arrived:

Receive only the quantities that came in.
Leave the rest open on the PO so you can see what's still coming.
If the supplier bills for the full order before shipping everything, you'll catch it at the match.

Don't receive the whole PO just to make it disappear from your list. That breaks your stock counts and your bill matching.

How do POs connect to job costing?

When a PO is tied to a job, its cost belongs to that job. That's how you find out whether the kitchen remodel or the system replacement actually made money.

Two things to watch:

Don't count the same material twice. If a part is bought on a PO for a job and then also recorded as used on that job, it should only count once in the job's cost.
Record returns. Unused materials returned to the supplier should reduce the job's cost.

Our guide to job costing explains how materials fit with labor and other expenses.

How do POs help with inventory?

For stock items, receiving a PO adds the materials to the right location: the shop or a truck. Over time, the prices on your POs also tell you what your stock actually costs. When supplier prices change, your cost records should change with them, which in turn affects your pricing if you mark parts up from cost.

If you manage truck stock, a low-stock list that suggests what to reorder makes it easy to turn "we're out of fittings" into a draft PO for the right supplier. See managing parts and truck inventory for more.

What are the most common PO mistakes?

Ordering by phone with no record. Then nobody can check the bill.
No job reference. Materials get used elsewhere, and job costs are wrong.
Receiving without checking. Short shipments and wrong parts get paid for.
Paying from the statement. Pay against matched invoices, not the monthly total.
Never closing old POs. Open orders from months ago clutter the list and hide what's really outstanding.

A purchase order checklist

PO required for job-specific orders and anything above your threshold
Every PO has a number, vendor, destination, job (if any) and expected prices
Supplier is given the PO number to put on their invoice
Materials received line by line, partial deliveries recorded
Bills matched to PO and receipt before payment
Old POs closed or canceled monthly

FAQ

Is a purchase order a legal contract? It can be, depending on its terms and what the supplier accepts. For most small contractors it's mainly a record-keeping tool. If you rely on specific terms, have them reviewed.

Who should be allowed to create POs? Usually the owner, office manager or a purchasing lead. Technicians typically request parts rather than creating POs directly.

What threshold should require approval? That depends on your business size and cash flow. Pick an amount where a mistake would hurt, and adjust it as you grow.

Do I need POs if I pay by card at the counter? For counter purchases, a receipt attached to the job as an expense often does the same job. POs matter most for orders on account and deliveries.

How ServFlo helps

On the Pro plan, ServFlo tracks vendors and purchase orders. Each PO gets a number, a vendor, a destination (the warehouse or a truck), an optional job and line items with unit costs. It moves from draft to sent to partially received to received, and you can receive everything at once or line by line, never more than was ordered. Marking a PO sent records the date, and the PO page prints for the supplier. Receiving updates stock and the item's average cost, and what a job's POs received counts in that job's costing without double counting parts also recorded as used. A low stock list can create a draft PO per vendor. See reports, job costing and inventory and pricing.

Purchase orders for small contractors: a simple system that works