How to Protect Your Interests When Using Purchase Orders


By John Lack,

A purchase order is a contract authorizing a purchase of goods or services. You should be sure it contains all the essential details, including a purchase order (PO) number, a list of products with quantities and pricing, shipping date and address, billing address, and payment terms. Many software programs provide templates you can use to make this process even easier.  

Purchase orders provide many benefits. A good purchase order provides detailed instructions on the order and adds legal clarity to the process. Controlling costs becomes more manageable by ensuring purchases are approved. Referring to a PO number makes tracking orders easier for both the buyer and the supplier. By using a PO, you have a permanent record of the item you ordered, which can be useful when assigning purchases to specific job expenses or removing items from inventory.

However, it’s important that you review purchase orders carefully and know you can attach your own specific terms and conditions as needed to protect your interests. Here are some questions you may want to address in your terms and conditions for consideration:

  1. Who pays for damages, such as product defects, shipping damages, and damages caused by installation?
  2. Can you reserve the right to refuse defective goods?
  3. Who owns the rights to custom fabricated orders?
  4. Is the supplier licensed and insured? If so, does their insurance cover their employee(s) while working on your job site?
  5. Can the supplier charge you for overtime without your consent?
  6. If items or services purchased are not delivered within a reasonable time frame, who is responsible for any increased cost related to re-shipment, rework, or cancellation?
  7. In the event of a claim, who is responsible for legal fees?
  8. Who will communications flow through to ensure all parties are in the loop around project updates (contractor, owner, architect, engineer, etc.)?
  9. Does your purchase order specifically reject supplier’s terms and conditions, and by supplier accepting this purchase order, is supplier accepting the terms and conditions stated in this purchase order?

Consulting legal counsel to draft your terms and conditions is wise. They can tailor language to your company’s specific needs. Using purchase orders won’t avoid all problems, but well-constructed contracts can help resolve many issues that do arise.


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