What Is Work Order Accounting? Why It’s Important to Your Business.
Work order accounting is a process that captures and compares work order information as a strategic way to increase a business’s efficiencies and profit. Let’s see how work order accounting can help your small business.
Here’s What We’ll Cover:
NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area.
What Is a Work Order Form?
A work order form is a document created by a business or vendor detailing a service to be provided to a client. It can also include products that the vendor will provide during the service.
Although a client request typically results in the work order being generated, it is a document that is used internally by the vendor and typically not for distribution to the client. Putting all the details of the request into a work order helps businesses to stay organized, and lets them plan more effectively by ensuring there’s enough personnel and products or supplies necessary to complete the job.
What Should Go in a Work Order Template?
Typically a work order should include:
- Work Order Number
- Requestor Name
- Client’s Name and Contact Details
- Date of Request
- Quantity and Description of Services and Products Being Offered
- Date Service to Be Provided
- Recommended Personnel to Be Assigned
- Special Notes
- Cost Estimate
Most work orders need management sign off before they can be acted upon.
Why Work Order Accounting Is Important for Business
Up till now we’ve been discussing 1 work order. But imagine 10 work orders, or 50, or even a 100, all in the same week. How do you manage that? Work order accounting is important for business because it allows a company to effectively track, troubleshoot and execute work orders efficiently.
A properly documented work order categories the product or service the company is offering, the staff or external labour needed, and equipment, by the job. If you have a number of work orders – or jobs, than capturing this information at the outset allows for better management and possibly cost savings for the company. Why? Because comparing work orders might result in opportunities to reduce overhead, as some work orders may require the same skilled labor, or equipment. The better the accounting system a company has in place to track their work orders, the more opportunities will present themselves.
Let’s give an example. Let’s say you work in the food service industry, running a small business that supplies kitchen equipment. That magical phone call or email has come in – a dream order to supply and install 3 microwaves, 4 walk in refrigerators, 6 freezers and 8 commercial size grills at a brand new restaurant. You and your business partners are excited at the prospect of such a large contract but clearly you want to make sure you can pull this off as it’s a big job and the client needs it all done in six weeks.
You or your Project Manager begin by doing up a work order. You punch in a list of the exact products needed, which automatically cross references your inventory. You also add in other important information – like date of install, and any special personnel or install equipment needed.
Immediately you have an overview of the situation: you know what you have in stock for the client, you can learn if required personnel are available in the schedule, and if the necessary installation equipment is committed to another job. That’s all valuable information to have.
But wait, there’s something else. Because you have taken the work order accounting process seriously, you realize that you have a few other kitchen supply orders in the works around the same time. The products needed are all of the same brand as the original order. Which means you can save money on bulk ordering and shipping, as you have a discount agreement in place with your supplier. You realize you can also save time on manpower by doing all the installs on the same day. You’ve just saved your company time and money, and just improved the company’s profit.
Work order accounting is as effective as the process a business puts in place to manage it. With a little software training, businesses can now automate work orders and weekly schedules so team members aren’t manually trying to track the hours spent on individual projects. As well, at the click of a button, work orders can viewed, edited or marked complete and from that data an invoice can be automatically generated.
As demonstrated here, a proper work order accounting system can modernize a company and save it time and money.
Other Questions Related to What is Work Order Accounting:
What Is the Difference Between a Work Order and an Invoice?
A work order is a single document created by a business outlining a service and/or product to be provided to a client. It is typically for internal use only. An invoice is a formal document that the vendor submits to the client upon completion of the work order, and it details the actual costs owed and payment instructions. Typically marking a work order as completed is the signal to the accounting department to generate the invoice.
As a tip, it’s a best practice that vendors always following up with their clients once the work order is complete but before submitting the actual invoice. It’s a good opportunity to ask the client if they’re satisfied with how the job went, and if there’s any room for improvement next time. It adds a personal touch (so often missing in today’s digital communications) and can help a business by ensuring client satisfaction as well as repeat business. And of course after that call the invoice will not be a surprise when it lands in the client’s inbox. In fact, if they’re happy about the call and the service provided them, they might process it right away instead of waiting till the end of the month.
Is a Work Order a Contract?
No, a work order is not a contract. This is simply an internal document that allows a business to plan resources in anticipation of executing the client’s request. Typically the client will never see it.