An invoice lands with Accounts. There’s no purchase order against it. Someone raises one so the invoice can be processed and coded, and the job carries on.
It’s so common that no one will even blink at it. The paperwork balances, the supplier gets paid and the cost lands on the right project.
But the PO has stopped doing the job it’s there to do.
A purchase order should capture a commitment before it becomes an actual cost. If the invoice reaches Accounts first and someone raises a PO simply so it can be processed, that opportunity has already passed.
The commercial question has changed from “should we commit this cost?” to “where do we put this invoice?”
That doesn’t necessarily mean someone ignored the process. The price may not have been confirmed, the programme may have been tight, or a subcontractor may have needed an answer to keep work moving. Whatever the reason, the important question is why the commitment wasn’t visible before the cost was incurred.
"A purchase order should be the result of a commercial decision, not the start of
one.”- Margin Insight
A late PO doesn’t prove you’ve lost money. Plenty of jobs run this way and still finish perfectly well.
What it does tell you is that the commitment may not have been visible or properly checked before the cost arrived. And an early PO only helps if someone has done the commercial thinking first:
Is there a budget?
Does the scope match what was allowed for?
Is part of this already covered somewhere else?
Is it over budget - and if so, why?
Pull the last month of invoices and ask:
How many invoices arrived without a PO behind them?
Of those, how many were over what the budget allowed?
Who is raising the late POs? If it’s consistently the same role, the process may be asking something of someone who can’t reasonably deliver it.
You don’t need a new system to do this exercise. One review of a live job can tell you a lot about where the process is breaking down.
Software can run the workflow. It can require an order before a commitment, send it to the right person for approval, match it to the invoice when it arrives and show committed cost against budget while the job is still live.
What it can’t do is make the commercial judgement. Someone still has to check the budget, understand the scope and investigate any gap before deciding whether to commit. The PO records that decision; it doesn’t make it for you.
Late POs don’t automatically mean margin is being lost. But they’re worth paying attention to because they can tell you that commitments aren’t being seen, checked or challenged early enough.
And unlike plenty of margin problems, this is one you can start investigating straight away.
This is one of six warning signs we pulled together with Margin Insight. The rest are in the full report, along with a checklist for getting the PO conversation right before the invoice turns up.
Read the report: Six warning signs your construction margin may be under pressure
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