All you need to know: Are purchase orders legally binding?

Has an unreliable supplier let you down? Are late orders backing up the system? Are your ears still ringing from that angry customer’s call? You need to get your ducks in a row before you figure out which one foots the bill. Don’t blame Jemima from accounting, Donald in sales, or Daffy in operations. Legally, purchase orders (POs) are binding, so check that first and go from there.

Except there’s a bit more to it than that. Of course.

What does a purchase order look like?

There are a few standard steps to the process of ordering goods from a supplier:

1. You’ve sent a supplier a request to order their items. All the details are there, including an agreed price and date of ordering.

2. The supplier then communicates their agreement or receipt of the PO, and will normally take payment at that point, or give a due date for payment.

3. The goods are sent and you will get an invoice. You can compare the purchase order, shipping information and invoice to ensure they are all correct.

So, if you send the PO and the goods don’t show up or are defective, you might ask, ‘Isn’t the supplier legally obliged to fulfil the order or provide compensation?’

If only it were so simple

As is often the case with agreements between parties, purchase orders are wrapped in legal ‘ifs’, ‘ands’ or ‘buts.’ The nitty gritty details may differ between countries, but as a rule, a purchase order is only as good as the Terms and Conditions that back it up.

These T&Cs are agreed at the start of the supplier/buyer relationship. This is a matter of negotiation; neither party wants to end up losing out. Government regulations need to be factored in, as well as the processes of each business. This provides the foundation for purchase orders, and with it, their legal basis.

You might find that things get more complicated in practice, though. Some suppliers, for example, don’t confirm a PO as standard practice. Some might need you to return their agreement to a PO with your own confirmation. It can be a minefield, especially if you work with several suppliers that all have their own ways of working.

I’m still not clear, is a purchase order a contract?

A contract is a legal document usually used for the purchase of services. Although there may be renewal clauses, it represents a long-term agreement between the seller and the buyer. Contracts can also be used in the place of purchase orders, depending on the nature of the transaction.

On the other hand, a purchase order is used for buying items, and is an agreement for a single business transaction. It represents a short-term arrangement that has no bearing on past or future purchases. It is legally binding only within these boundaries.

The best way to give yourself a solid legal ground to stand on with purchase orders, then, is to have the strongest negotiating position. Once you have that, avoid confusion with a simple, traceable process for purchasing. Try Turbine. Your suppliers will take to it like ducks to water.