Today, we cover the biggest benefit of integrated accounting: linking vendor payments to their underlying purchase orders so that inventory costs are correct.
Before we jump in, a fun photo. We decided early on that we wanted Rundoo’s sales team to be spread across the United States because we think it’s important we get to know our clients face-to-face. The downside is that we don’t get to see each other face-to-face very much. 😭
But this week we did! The sales team flew to California to spend time together.
We had a blast eating Indian food, playing board games, hiking in the sun, and swapping stories from paint and hardware store visits. Now everyone is back on the road!
Linking payments to orders
Problem: costs and margins don’t match reality
Last time, we wrote about average cost and why it is used to calculate margin on sales. The extreme summary is that because your costs change over time, Rundoo uses the average cost of the inventory at the time of each sale to determine gross margin.
BUT there is a big assumption: the average cost is correct. This relies on you ensuring that your received purchase order (PO) has the correct costs. There is no automatic check for this! If what you pay your vendor doesn’t match what is in Rundoo, your costs and margins will be wrong. It’s that simple.
Solution: link payments to the POs they pay
The way to prevent this is to link payments to their corresponding POs. That is, match the line item on your bank account to the underlying received orders in Rundoo. By doing this, you will see if the totals do not match, and you can update the PO accordingly.
Example: Wooster invoice
I think this is best explained with an example.
Let’s say you received 200 brushes from Wooster.
A few days later, you receive an invoice for $1,050 from Paint Sundries Solution (PSS) and are ready to pay it. Because you can make ACH payments directly from Rundoo, you look at the list of common vendor payment information and see PSS.
You start an ACH payment mapped to Accounts Payable, and you reconcile against your orders.
Wait a minute! They invoiced you for $1,050 but your received order totals only $1,000.
You open the order and see the per-unit cost of the brush is wrong! It is $5, but the cost has risen to $5.25. You update the cost.
This will update the average cost of this brush by adding $50 to the total value. For example, if you currently have 250 brushes at an average cost of $5. Your new average cost will become $5.20 = (250 * $5 + $50) / 250. It is okay that the order’s cost was wrong because this adjustment will make your inventory expenses match your payables.
The payment and invoice now match, and you can complete the payment! 🎉
What next?
This is live for everyone! That said, we know anything related to accounting is a big change, so don’t hesitate to chat us in the app, email support@getrundoo.com, or call at (650) 334-3205.