How Do You Keep Track of Vendor Accruals?

You thought you had your project all wrapped up when, SURPRISE, vendor invoices just keep coming in.  Whoops, things didn’t go as well as you thought. The costs on your project keep soaring, and you have to keep updating your project reports to your superiors.

How does this happen?

This happens because vendors rarely invoice you at the time they completed the work, or delivered the materials.  The problem is, if you wait until vendors invoice you to show the cost on your project, then you’re in for a lot of surprises.

Here’s a common scenario:

Every day your Site Supervisor is asked to approve or sign-off on the work done that day by the various subcontractors on your project – or materials delivered by suppliers. All those approved daily field tickets make their way back to the subcontractor’s Accounts Receivable group; and they then batch them up for invoicing. You of course have a copy too, and it likely sits as a scanned document on a shared drive somewhere. However, this receipt-of-work-done typically isn’t used as a means to record the associated cost on your project. Most often, a project’s actual costs are driven by updates from accounting, or manually input into spreadsheets by a project manager when the vendor invoice is received.  The problem with this model, is that you might not receive that invoice for weeks if not months after the work was completed – so during that time, there’s a discrepancy between what’s showing on your project for actual cost, and what you are in fact liable to pay.

This scenario can fill you with surprises since you’re really at the mercy of your vendors’ invoicing cycles.  Not all vendors are as organized as you are, and are often known to send invoices months and months late.

This problem rolls-up the food chain since your accounting department relies on you (the project manager) to get a full grip on outstanding liabilities. If the project numbers you report to accounting are misleading, they can get a little upset when you share those surprises with them.

The best way to avoid this and get full visibility into project health, is to separate out the four main states of a vendor contract, and track the receive separately from the invoice.  In 4castplus, these states are referred to as: Committed, Incurred, Invoiced and Accrued.

Committed: Once the initial contract (or, purchase order) is issued to the vendor, the total amount of that contract is registered as “Committed”. The amount is a sum of all quantities and unit rates for each item on the purchase order.

Incurred: Also known as “Received”. Any quantities received against that committed work or supply will be tracked as “Incurred”. This could be a progress draw, partial receive, or fully completed work or delivery. This is a key state, because it records the cost of the transaction on the project, even though the invoice hasn’t been received.

Invoiced: Once the vendor sends the invoice, this can be “Attested” or approved against quantities Incurred. Any adjustments can be entered here if the invoice values differ from the incurred values.

Accrual: This is delta between Incurred and Invoiced, and represents the liability of your contract – and of your project.

For companies that don’t use formal contracts with their vendors, can still use this system as a means to track those states by using Dummy Contracts.

Total Accrual amounts are shown in a variety of ways, including aggregated up for the whole project; a program of projects; or for the whole company. Click on the screenshot to the right to see how these values are visualized in 4castplus.

How Do You Keep Track of Vendor Accruals?

Having full visibility into project and company vendor liability is a critical tool to alleviate the surprises and frustrations that go along with utilizing vendors on projects.

Share this post

Speak With A Member Of Our Team

No other software offers such a comprehensive suite of project management and procurement tools. Schedule a meeting with a member of our team and see what 4castplus can do for you.