I am working with a university for the first time. They want to pay me via purchase order, but the process on their end seems to take forever and I don’t get why? Isn’t the money already there and that the school has already given green light for the purchase? What am I missing?
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You don’t get paid WITH a PO, you get paid ON a PO. It’s a very formal IOU, basically. They give you a PO, you perform the work, and then invoice according to the PO, and they pay the invoice.
That’s how most large organizations do procurement. The process is that formal in order to create accountability, and make it easy to audit and ensure that what you invoice for is what was agreed on prior to work being performed. You will not be able to invoice for anything that’s not on your purchase order, unless you get a change order, more than likely.
The reason a po takes time is that, usually, purchasing departments are not known for their processing speed mainly due to the often cumbersome po approval process that involves ever more approvers. Good luck.
With a PO the buying is a little different than when you order something.
In general the buyer has to follow a request from a department and the department doesn’t buy it themselves. They have to follow guidelines and buy for example the best price, this doesn’t mean the cheapest price.
When they decided on the seller, and it’s not the one the ordering department asked for, they have to communicate. When the order is made they have to communicate with the ordering department, accounting and more. When the package is on the way they have to communicate with only God knows. When the item made it to the university the shipping department gets it, communicates with the buying department checks with who God knows, double checks and triple checks the items, sends it to the department to have it double and triple checked.
They tell the buyer it’s ok which tells accounting it’s ok which then has 30 days to pay you.
So the communication is just more as each department has to communicate with each other department.
But on the good side if it worked out for them and the quality was good, they might add you to the list of approved sellers and some of that communication will stop making everything faster on both sides.
Wait until you deal with shit like net 60 companies which basically means you got to float yourself for 60 days because that how long it takes to invoice after the PO is done and these are massive companies *with the money*.
All I have to add to the other good responses is that organizations have no incentive to speed up this process. In fact, they gain from having it be as slow as possible. So don’t be surprised if the process continues to drag on after you invoice.
Let’s say I spend 120 million per year on purchasing via PO. If my vendors don’t get paid until 6 months after I get billed, that’s 60 million in delayed cash out–which in finance/accounting terms is free “working capital”. Their incentive is to push it out as far as possible without driving too many vendors away.
The Purchase Order is the first step in the chain: the customer (university) sends the supplier(you) a Purchase Order, which defines what they want to buy, and how much they will pay, and any other terms. The supplier then sends an invoice, referencing the Purchase Order, to the customer, who will pay at some point.
Never do work without a purchase order if this is what they are using. Some organizations may take weeks to get one created. The place I used to work, someone would have to set the supplier up in the system, and someone else would have to approve that, then someone would have to set a part number up in the system, then someone would have to approve that, then someone would have to create the Purchase Order, and depending on the dollar value, other people would have to approve it. Then when the work is done, some one has to approve the invoice and send it to someone else to issue payment.
A purchase order is when someone that buys something makes and agreement with a seller to buy things, usually with some conditions on how quickly they’ll be paid, how quickly the stuff will be shipped, price limits / discounts, and maybe some promise to go to the seller for all their purchases of a certain thing.
You aren’t being paid **via** purchase order, your pay is being from a purchase order. That is to say that the school setup an account for some department to spend money for certain specific things, such as paying contractors or buying equipment. The department notifies the school that you should be be paid some money from that account, and the school eventually pays from that account, if there’s money in it. The purchase order will say something like “all payments will be made within X days of the request” or “on the nth Tuesday of the month” or similar).
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