A Not-To-Exceed purchase order authorizes a vendor to bill you for actual costs up to a ceiling amount. You use these when the exact scope or final cost isn’t known upfront but you need to cap your exposure. They’re common in construction, professional services, and maintenance contracts where work is variable.

The core challenge is tracking how much has been billed against each PO and how much room remains. Without a system, you only find out the ceiling was exceeded after the invoice arrives and the work is already done.

Start by recording every NTE PO with its ceiling amount clearly documented. Include the vendor name, PO number, job or project it relates to, issue date, and the maximum authorized amount. When invoices come in from that vendor, match them to the specific PO and track the cumulative total.

Create a running balance for each open PO. If you issued a $12,000 NTE and the first invoice is $4,200, you have $7,800 remaining. The second invoice for $3,500 leaves $4,300. This sounds obvious, but most businesses don’t track it actively. They issue the PO and forget about it until there’s a problem.

Set warning thresholds at 75% and 90% of the ceiling. When a PO hits 75%, someone should review whether the remaining balance will cover the expected work. At 90%, you need a decision: either the work is nearly complete, or you need to issue an amendment increasing the ceiling before the vendor bills over the limit.

QuickBooks handles basic purchase orders but doesn’t track NTE ceilings well on its own. You may need a supplemental spreadsheet or a more robust system to monitor remaining balances across multiple open POs. The project and job costing setup matters here because NTE POs should link to specific jobs so you can see total committed costs against your project budget.

When a vendor needs to exceed the original amount, issue a change order or PO amendment before they do the additional work. Document why the increase is needed, get approval from whoever authorized the original PO, and update your tracking. Don’t let vendors bill over the ceiling and sort it out later. That defeats the purpose of having a Not-To-Exceed in the first place.

Review open NTE purchase orders monthly. Close out completed ones so they don’t clutter your tracking. Flag any that have been open longer than expected or are approaching their limits. This review catches situations where a vendor stopped billing but the work isn’t finished, or where you forgot to close a PO after final payment.

For businesses with many active POs, this tracking becomes a real workload. Small business bookkeeping services can help you build a system that monitors commitments without requiring you to manually check every PO each week. The goal is knowing your exposure at any given time so there are no surprises when invoices arrive.