Purchase Order Terms

Procurement, bolstered by efficient purchasing software, lies at the core of flourishing startups. It plays a pivotal role in the expansion, competitive vitality, and ongoing existence of your company. Among the most crucial documents within the procurement process is the purchase order. The purchase order encompasses terms and conditions that we recommend you acquaint yourself with.

Fortunately, we have prepared a description of the most common purchase order terms. Once you have familiarized yourself with these terms, you can use them effectively when composing your purchase orders and other contractual agreements.

But before we get any further, do you know what a purchase order is? Let’s get that out of the way first!

What is a Purchase Order?

A purchase order (often abbreviated as “PO”) is a document issued by the procurement department of a business or organization to its vendors or suppliers when placing an order. The document is essentially a list of goods and services that are to be purchased and it indicates the type of goods, quantities, delivery schedules, and prices. You can find out more about purchase orders in our article titled, “What is a Purchase Order?”

Now that you know what a purchase order is, we can move on to terms commonly used in a PO.

What are Some of the Terms Commonly Used in a Purchase Order?

There are several terms in a purchase order, and we are going to highlight some of the standard ones that you are most likely to come across in a PO. Let’s get right to it then!

Acceptance of Terms

This section in a purchase order usually outlines what constitutes accepting the terms and conditions of the purchase order. You must read through all the tiny details in a PO before agreeing to the terms to ensure that you don't commit to something that you don’t understand.

Inspection

This defines the buyer’s right to inspect the goods and/or services before taking any delivery. This ensures that there are no qualms over quality or any changes when the goods and/or services are delivered.

Payment

This is a definition of the modes of payment, installment terms, due dates, interest rates, or penalties if payments aren’t made as agreed.

Performance

These are the specific expectations of each party i.e. what the seller expects from the buyer and vice versa. It indicates the specific responsibility of each party. This ensures that none of the parties feels the other hasn’t fully delivered by delineating expectations prior.

Changes

This refers to modifications or tweaks made to the purchase order. Changes can and cannot be made to the purchase order before and after acceptance. I know this sounds like a paradox, but what we mean is the parties can make changes to the Agreement prior to the acceptance. However, after acceptance, changes can only be made if both parties agree.

Confidential Information

This clause defines how sensitive proprietary and limited access data shared during a transaction can be used by a buyer or a seller or even shared with a third party.

Indemnification

This describes how the buyers and sellers will be protected against a breach of any terms agreed on in the PO.

Seller Warrants

This is the seller’s assurance that the items will arrive as described without any discrepancies, and the remedies available if any of the items are damaged, missing, or in an unacceptable condition.

Termination for Convenience

This clause allows either party to terminate the agreement without any specific reason (e.g. breach of contract or non-performance).

Remedies

This outlines the specific treatments available to each party in a case where the other party doesn’t perform as specified in the agreement.

Severability

This is a clause that prevents the entire agreement from invalidating because of a single term or condition.

Patents and Data

This defines the property ownership of intellectual property, patents, and any data shared between the buyer and the seller during a transaction.

Limitation of Liability

This indicates the financial, time, or other limits on the liability that each party may incur for damages that occur during or as a result of the transaction.

Relationship of the Parties

This defines the specific relationship between the buyer, seller, and any third parties involved in the transaction.

Survival

This is a clause that outlines which terms and conditions will remain in force after the Agreement ends or expires.

Publicity and Disclosure

This section specifies which information can be shared through advertising and other campaigns, or even similar interactions where sensitive information might be divulged.

Subcontracts and Assignments

This clause governs the seller’s ability to subcontract or assign elements of the work to other parties. It also indicates how the buyer will interact with subcontractors or assignees.

Anti-corruption Provisions

In this clause, both parties are assured of the integrity of the other and guarantee adherence to local and federal anti-corruption laws.

Insurance

This is an outline of specific insurance requirements for both parties, including the coverage and the limits.

Governing Law

This establishes the jurisdiction governing the Agreement. Any legal action related to the Agreement must be brought forth in the specified location governing the contract.

Entire Agreement

This clause establishes that all the information and data contained in the Agreement make up the “entire agreement.” This means that no amendments or additional provisions can be added except if both parties approve.

These are just some of the most common terms that you might come across in a PO. Learn them and use them effectively to ensure that both you and your suppliers maintain a positive relationship and mutually benefit from all transactions.