No matter the size of a home renovation or building project, purchase orders are a routine part of doing business in the construction industry. Getting them right and knowing how they work can make your business more efficient and profitable. This guide explains the construction purchase order process, how to create effective ones and what information to include in a construction purchase order.

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• What is a purchase order in construction?
• Construction Purchase Order Process: Where Do They Fit In Your Workflow?
• Why Purchase Orders in Construction Projects are Important
• More Benefits of Using Purchase Orders for Construction
• What Should a Construction Purchase Order Include?
• How to Create a Purchase Order for Construction
• Best Practices for Managing Construction Purchase Orders
• Purchase Order Mistakes to Avoid During Construction Projects

What is a purchase order in construction?

A construction purchase order is a document a buyer sends to a supplier, renter or another type of vendor to confirm an order for construction materials, equipment or services. It includes the type of materials, price, payment terms and more. As soon as the purchase order is accepted, it creates a legal contract between you, as the buyer, and the seller. 

Let’s say you are ordering lumber for a client’s renovation project. Before committing to the order, the supplier will expect you to send a construction purchase order outlining the type of lumber, dimensions, number of units, unit price, total cost, and the lumber will be delivered. The order should also include terms and conditions such as when payment will be made.

Construction Purchase Order Process: Where Do They Fit In Your Workflow?

Construction purchase orders differ from both contracts and invoices in the construction lifecycle. They are a request to purchase specific items under specific terms at a specific quantity and price. An invoice is sent after the materials or services outlined in the construction purchase order are delivered. Every construction purchase order is a legally-binding type of contract once it is accepted, but a contract is typically a more detailed document. Sometimes, in large complex projects, where larger quantities of purchases are involved, a contract may also be expected. 

Why Purchase Orders in Construction Projects are Important

The benefits of using purchase orders for construction materials are many. They can help keep a project within budget and on schedule, serve as documentation in case something goes wrong and can help track the inventory of supplies and expenses for a home renovation project.

Construction Purchase Orders are recommended even when dealing with a long time supplier because it provides a record of when materials are being delivered and under what terms. Being able to audit purchases through purchase orders makes it easier to sort out the source of errors like when a pallet of shingles is short, or a leased backhoe has mechanical issues. Routine use of purchase orders also reduces the likelihood of mistakenly ordering twice, avoiding strains on your project budget and nerves. 

More Benefits of Using Purchase Orders for Construction

Here are some other benefits of mastering the construction purchase order process:

Manage Projects More Efficiently - With purchase orders that are easily accessible and organized, construction pros get a better handle on what supplies and services have already been ordered, which are already on site and what are left to purchase.  

Better Control Project Costs - Effectively gauging the materials and services already approved with purchase orders reduces the risk of unnecessary purchases, and makes it easier to know when budget adjustments need to be made, helping to keep project costs down as the job progresses. Purchase orders for construction materials can also be used to track and forecast what the profit margin of a project will be in the end. 

Reduce Risk of Project Delays - Money and time is wasted when subs are ready on the job site, but not all the materials are there to get the job done. Purchase orders accepted by the supplier are a commitment by them to meet the delivery terms, and tracking those orders to make sure the terms are being met can help avoid unpleasant work slowdown surprises. 

What Should a Construction Purchase Order Include?

While the details may vary depending on the circumstances, here’s a list of what remodelers and contractors typically include in a construction purchase order template:

Purchase Order Number - An order number is crucial for tracking purchase orders and providing a way to refer to them with vendors and other team members. Pick a numbering system that is consistent and intuitive.

Project Information - This information connects the purchase to a specific project to avoid confusion when juggling multiple projects.

Vendor Information - Who is the recipient of the purchase order? The name and basic contact information of the vendor should be included here.

Item Description & Quantity - This is a brief, but specific description of the exact product being ordered along with the dimensions and number of units.

Price & Total Cost - Include a column for cost per unit that carries over to the total price of the order that has been agreed upon with the vendor. Learn How to Price Construction Jobs here.

Delivery Date & Location - Be specific about the address, exact location and when the order will be delivered. Where should it be placed on the job site? Will someone be there to accept the delivery? Do you require photo documentation of the delivery?

Payment Terms & Conditions - Provide clarity on when the supplier will be paid and what criteria needs to be met first. It could, for example, be up to a certain number of days, upon delivery or following inspection of the materials delivered.

How to Create a Purchase Order for Construction

Now that you have determined you need to create purchase order format for construction materials, here’s what to do next:

Choose a Purchase Order Method  

These are the three common types:

• Manual - This legacy method is the most tedious way to create a purchase order for construction. It means filling out a paper form by creating one from scratch or by using a construction purchase order example -  with a copy to keep for your records  - and delivering it to the vendor either in person, via snail mail or  by scanning it and sending it by email. Creating purchase orders manually is not only slow, but makes it challenging to keep track of them as they pile up on desks, truck dashboards and in folders. 
  
• Software - It is far easier to create construction purchase order templates through the many digital construction purchase order software options available. Digitizing is the first step toward simplifying the process of creating them, and getting closer to realizing the full benefit of construction purchase orders as a valuable business tool.
  
• All-in-One Construction Management Tools - Software like Houzz Pro includes purchase orders as part of its menu of features that help renovators and contractors manage their construction business more efficiently, centralize communication with clients and rein in the paperwork demands. The software lets you easily create purchase orders, track and organize them, check off approvals and see when items have been delivered and paid for. 

Obtain Necessary information - Determine where you need to go to acquire all the necessary details to include in the purchase order.

Determine Budget & Set Spending Cap - Before contacting the vendor about pricing, conduct  research to determine what you can expect to pay for the materials and see how the purchase fits into the project budget. Then, set a price limit you do not want to exceed.

Select a Vendor & Negotiate Terms - Once you find a vendor that meets your pricing, quality and other criteria, negotiate the price, delivery date and other relevant terms to fit the timeline and budget of the project.

Create & Issue the Purchase Order - When you are satisfied with the terms and the vendor, it’s time to put the construction purchase order into writing. Double check all the information before sending it to the supplier. This becomes a legal contract once it is accepted by the vendor.

Track & Manage it Over Time - Once the purchase order is accepted by the vendor, the work does not end there. Follow it to assure that delivery was made on schedule, the order was complete and materials met quality expectations before issuing payment. Follow up with any concerns.

Best Practices for Managing Construction Purchase Orders

Managing construction purchase orders, like any paperwork, can get onerous without the right tools to create, organize and analyze them. Here are some best practices:

Use Digital Tools To get the most out of using construction purchase orders, and to reduce the burden of organizing them, construction pros prioritize investing in a centralized system to manage them. Houzz Pro is an all-in-one construction management software that helps standardize the creation of construction purchase order templates, organize them, and track them.

Ensure Accuracy and Completeness - Before hitting the send button on purchase orders, make sure the document is complete and accurate so you don’t have to return to a vendor to clarify, or receive the incorrect products or services. 

Monitor Purchase Order Status - Just a single project can produce dozens of purchase orders or more for a remodeler. With so many in play, it’s crucial to have a way to monitor the progress of existing ones in the pipeline.

Track Expenses & Adjust as Needed - Purchase orders can provide an indicator of when budget costs are going off track or coming in lower (!) than expected because you can match them up against the bills being paid. Make changes to budget projections as needed and use them to forecast profit margins. 

Develop Strong Relationships with Suppliers - Vendors are a key piece in making sure your clients realize their renovation dreams. Building strong connections with them can smooth the journey and assure that you are partners in helping clients get what they want. Seek their feedback on how you can make their job easier, including whether the purchase orders are providing the right details and information to help them do their job. 

Purchase Order Mistakes to Avoid During Construction Projects

Missteps that happen with purchase orders can bring project delays, missed opportunities and unnecessary expense. Here are some of the most common ones and how to avoid them:

Not Using Them for Every Order - It is easy, especially when making multiple purchases from longtime suppliers, or in the rush of the work day to overlook the paperwork. This, however, can spiral into disorganization and make it too easy to forget to record purchases.The lack of transparency also means not everyone on the team is looped in, leading to possible duplicate purchases and unnecessary overspending.

Purchase Orders Lacking Key information - Forgetting some of the most important details puts the onus on the vendor to contact you for more information. Or worse yet, the wrong materials are purchased and delivered, and you have to start all over again. 

Overlooking Payment Terms & Conditions - Disagreements around payments and missed delivery dates are not fun nor conducive to maintaining good relations with vendors and clients therefore don’t forget to be clear on the terms and conditions and include them in writing. This may include stating that the payment will be made within 30 days along with a caveat that no payments will be made until the deliverables are inspected for quantity and quality.  

Failing to Track & Manage Purchase Orders - Without prioritizing a system for managing purchase orders risks having orders fall in between the cracks with delayed deliveries, duplicate orders and time wasted trying to locate them. A major payoff of being diligent about issuing purchase orders is that they can inform your projects and spending along the way. That is diminished if the orders are nowhere to be easily found. 

How to Get Started

Join renovators and builders in the construction industry who routinely use purchase orders to run a more efficient and profitable business. Get started with our construction purchase order sample, then sign up for a free trial of Houzz Pro. to try our purchase order tools, cloud-based storage and online payment/e-signature features– all of which can aid in building and sending construction purchase orders that work for you and your business.