I am interested in knowing how we can use purchase orders for Time & Material contracts (Service Contracts). Currently, we are processing these purchase orders the same way you would process materials. What would be the best way to process these invoices?

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The answer to your question depends on how the service contract is structured, whether its a one-time engagement or a recurring assignment, materials purchased, and system capabilities. We have not found one particular best practice among companies. For instance, some companies use a standing PO for recurring or project based contract services. An example could be a service contract for consulting where there is a written agreement defining the project and an estimate of the cost. A standing PO is completed for the project estimate. Amounts billed are approved based on the parameters outlined in the PO and each installment billing on the project must reference the PO. A cumulative total is tracked to make sure its not over the limit authorized. This same process could be used for recurring service contracts such as retainers, etc.. with professional firms.

Some companies limit the use of a PO for service contracts based on the dollar amount so that they are not generating POs for a bunch of small dollar services. A computer consulting engagement of $50,000 may require a PO but a $500 service call on maintenance of equipment in your office may not require one. For annual recurring maintenance contracts you could use a standing PO that provides the authorized limits of the service but it has an expiration date on the PO. This forces management to review the PO on a regular basis to make sure the PO is in agreement with the service contract.

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