The purchase order process for subcontractors: money spent before the invoice arrives

A commercial job can be four percent under budget on the last day of the month and two percent over three weeks later, with nobody doing anything wrong in between.

The gear was released in week two. It shipped in week six. The supplier invoiced in week nine, and the bill reached job costing in week ten — eight weeks after the money was actually gone.

That is not a bookkeeping problem. The cost existed the moment somebody said yes on the phone. A purchase order is the document that makes that moment visible, and most subs under $30M either skip it or run it as a filing exercise after the fact.

Why most subs run without POs

The reasons are not stupid ones. You have bought from the same three suppliers for eleven years, you have a counter account, and a foreman can pick up fittings on the way to the job without asking anyone. The PO feels like GC bureaucracy imported into a shop that moves faster than paperwork — and the supplier does not need one to ship.

Here is the bill for that convenience.

• No price lock. The number you were quoted and the number you were invoiced are two different numbers, discovered six weeks apart.
• No spend authority. Anybody with a phone can commit the company. You find out at month-end.
• No attribution. Material arrives on a job and nobody can say which job it was bought for, so it gets coded to whichever one is open in front of the bookkeeper.
• A job-cost report that only knows what has been invoiced. Which is the specific failure in the first paragraph.

The three jobs a purchase order does for a sub

Strip away the forms and a PO does exactly three things.

It authorizes the spend before it happens. Someone with the authority to commit the company’s money says yes, in writing, at a number. Without that, the first time an $8,000 fixture package gets reviewed is after it has shipped.

It fixes the price you agreed to. Quotes expire. Copper moves. Freight gets added. A line-item PO is what turns “I think he said twenty-two a foot” into a document you can hold up when the invoice reads twenty-six.

It attaches the cost to the job before the invoice exists. This is the one almost nobody runs, and it is the one that protects margin. An open PO is money already spent. Until your cost report says so, the report is telling you a comfortable lie.

When a PO is worth writing

Not for everything. A purchase order you resented writing is a purchase order written badly.

Write one for:

• Any order above a dollar threshold you set once. Most subs this size land somewhere between $1,000 and $2,500. The exact number matters far less than having one.
• Everything long-lead or engineered. Switchgear, air handlers, fixture packages, curtain wall units, doors and hardware, a fire pump. Twenty-six weeks of lead time is twenty-six weeks of commitment sitting outside your cost report.
• Anything you intend to bill as stored material. The PO, the delivery ticket and a photo are the support for that line on the draw. More on that in schedule of values for subcontractors.
• Equipment rentals with an open-ended return date. The lift that was needed for four days and went back in five weeks is one of the most common unbudgeted costs on a commercial job.
• Material bought for a change order. Buy it against the change, not against your base budget, or you pay for the change twice: once in cost, and once in a base-contract overrun you cannot explain.

Skip the PO for consumables under the threshold — but give the counter account its own line and read it once a month. Uncoded counter spend is where a quietly bleeding job hides.

One boundary worth keeping straight: a PO is for material and supplier purchases. Scope you hire out to another company belongs on a subcontract, with its own insurance and lien exposure. They are different instruments and they fail in different ways.

What belongs on a sub’s PO

• The job. Not “the Henderson project” — the job number your cost report uses. A PO without a job is an accounting entry, not a management tool.
• The supplier, and the person who quoted it. Quotes are personal. In four months you will need the name.
• Line items: description, quantity, unit, unit price. Item level, not a lump sum. A lump-sum PO cannot be reconciled against a partial shipment, which is how most material actually arrives.
• Tax, and whether it is included. A sales-tax surprise on a six-figure equipment buy is a real margin event.
• The expected delivery date. This is the field that generates a phone call three days early, instead of the one made while a crew stands in an empty room.
• The PO number, and a plain sentence requiring it on the invoice. Your entire reconciliation depends on one line of text inside your supplier’s accounts-receivable system. Ask for it on the PO, then ask their AR clerk once, by name.
• Notes: the quote number and date, who approved it, and where it goes on site. Delivery to the wrong gate is a half-day of labor.

Who gets to commit the company

Decide this once and write it down: a PM issues up to a threshold, the owner or the controller above it, and nobody releases engineered equipment without a second signature.

Then make the approval fast. An approval step that takes two days will be routed around by the first foreman who needs pipe, and a control everyone bypasses is worse than no control — because you now believe you have one.

Committed cost: the arithmetic that makes POs worth the trouble

This is the part that earns the process back.

Most subs read their material position as budget minus invoiced cost. The honest version has a third term:

Budget − invoiced actual − open POs = what is actually left.

Take a job with a $410,000 material budget. Invoices to date total $180,000. There are $160,000 of open purchase orders — released, acknowledged, some of it already sitting in a yard somewhere, none of it invoiced.

The first calculation says you have $230,000 left to spend. The second says you have $70,000. On a job that size the gap between those two answers is the whole margin, and for two months only one of them is true.

Worth saying plainly: an open PO is the most reliable cost on your report. It is a number a supplier and a buyer agreed to in writing. An accrual is a guess and a labor projection is a hope. The commitment is a fact.

The reconciliation loop, and the four places it breaks

The loop is: PO issued → material delivered → invoice received → invoice matched to the PO → cost coded to the job → paid.

The invoice arrives with no PO number. Now someone is guessing from a description and a date. Fix it upstream, with the sentence on the PO and one conversation with the supplier’s AR.

The invoice does not equal the PO. Freight, escalation, a substituted item, a partial shipment, a restocking fee. Each of those deserves a decision — accept it, dispute it, or revise the PO — and the decision has to happen in days. An unmatched invoice sitting in a folder is a cost your job does not know about.

The PO that never closes. Delivered, invoiced and paid, but still showing open, so its commitment is counted on top of the invoice that replaced it. That double-counts cost and teaches everyone to distrust the number. Review open POs monthly. It is a ten-minute pass and it is the only thing keeping committed cost honest.

Field purchases nobody codes. Will-call pickups on the company account, charged to a job in somebody’s memory. Decide whether that is allowed; if it is, require the job number at the counter.

Where POs touch the billing side

Two places, and both of them are money.

Stored materials. If your contract lets you bill material delivered but not installed, the PO is half the support package; the delivery ticket, a dated photo and proof it is stored where the contract requires are the other half. A stored-material line without that file is a line the GC’s accountant will remove.

Change-order material. Material bought for extra work has to carry the change with it, or your base budget absorbs somebody else’s decision. If the change is not papered yet, the PO is still your record of what proceeding cost you — which is exactly the situation in billing for extra work without a signed change order.

How SubMark handles it

SubMark runs POs so the commitment shows up on the job the day it is made, not the day it is billed.

• A purchase order belongs to a job and a supplier, with line items carrying description, quantity, unit and unit price, plus a tax rate, an expected delivery date and notes.
• The statuses are the lifecycle: Draft, Sent, Invoiced, Paid, and Cancelled. No invented workflow states to learn.
• The approval step is optional. Turn it on and a PO is submitted for approval, then shows as awaiting approval, approved, or rejected with the reason written down. Leave it off and a PM issues directly.
• Send it the way you already do: download the PO as a PDF, or email it to the supplier from SubMark with a cc and a message.
• The numbers above the list are the ones you actually ask for — open POs, committed, billed, remaining and total paid.
• Every PO that isn’t cancelled shows in job costing as committed material, beside invoiced material and kept out of the cost total, so a commitment is never mistaken for a cost that has already hit. That split is the entire point; see job costing.
• Supplier invoices come in through the Invoices Inbox, an opt-in module. Drop the PDF, the vendor, invoice number and amount are read off it, and you tag it to its job and its PO.
• QuickBooks Online: POs push across with a click, and bills and purchases pull back in, on demand or hourly once you switch auto-pull on, so supplier cost lands against the job. Pushes go one way and one PO at a time; pulls come back the other way.
• Creating a PO, seeing the dollars on it, and approving it are three separate permissions, so a PM can raise one without the company’s financial position being open to the whole office.

Three honest limits. A PO attaches to a job and a supplier, not to a budget line or a phase, so committed material arrives as one figure on the job rather than split across your cost codes — map it yourself when the breakdown matters. SubMark shows committed and invoiced side by side; it does not compute budget minus invoiced minus open commitments for you. There is no receiving log: the expected delivery date is a field, not a tracked event, and status moves from Sent to Invoiced, so a partial delivery is a judgment call rather than a three-way match. And the QuickBooks push is deliberately one at a time, which is right for a document someone should look at before it enters the books, and wrong if you were hoping to clear forty of them on a Friday afternoon.

Field users are free and unlimited, so putting the crew on the system never changes what this process costs you.

What to do this month

1. Set a dollar threshold above which a PO is required, and say who can issue one below and above it.
2. Put one sentence on your PO template requiring the PO number on every invoice, then call your three biggest suppliers’ AR clerks and ask for it directly.
3. Raise POs for every long-lead and engineered item on your two biggest jobs — even retroactively, for things already released.
4. Recalculate those two jobs’ material position as budget minus invoiced minus open commitments. Expect the answer to be worse than the one you have been reporting.
5. Close the stale POs, and put a monthly ten-minute open-PO review on the same day as your labor and cost review.

A purchase order is not paperwork for its own sake. It is the only mechanism that puts a cost on a job on the day the decision was made — which is the only day anyone could still have decided otherwise.