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A purchase order is a legal agreement between a buyer and seller for goods or services, with terms including cost, material description, delivery time, FOB, and payment terms. These terms are negotiable, but some are not.
When a business purchases goods or services, it is usually through a purchase order. Since a purchase order is a legal agreement between a buyer and a seller, it is important that the terms of the order are set out clearly and precisely in order to prevent any disagreements between the two parties. Common purchase order terms include cost, description of materials, expected date, and transportation obligations.
One of the most important terms of the purchase order is the cost of the item, which shows how much the buyer is willing to pay for the goods or services. If the recipient of the purchase order cannot or will not match the cost of the purchase order, he must indicate this to the buyer. If the seller proceeds with the order, he is obliged to sell the product to the buyer at the price indicated in the purchase order.
A good purchase order has an unambiguous material description. The issuer of a purchase order should be as specific as possible to avoid any subsequent confusion. The anticipated goods or services must be described in as much detail as possible within the body of the purchase order.
Delivery time is another condition of the purchase order. Large manufacturers, or even small manufacturers with just-in-time inventory, often require long lead times to process an order. If a seller cannot meet a specified deadline, he must indicate this to the buyer and not accept the order unless the deadline is not negotiable.
Freight On Board (FOB) is a popular condition of purchase orders. Indicate who is responsible for the cost of transport and from which location. If a New York buyer purchases a truckload of carpets from San Francisco, the terms might be “FOB New York City,” meaning the seller must pay for transportation to get to New York City. If the terms are “FOB San Francisco”, it means the buyer is responsible for the transit cost. Terms of transportation are especially complicated when it comes to international shipments and both buyer and seller need to be clear about who is paying customs duties and taxes, as well as for the actual transit of the goods.
The standard payment terms in the US are “Net 30”, which means that an invoice must be paid within 30 days. Other standard terms are “Net 15”, “Net 60”, “Net 90” or “Due Upon Reception”. If a purchase order is paid for by credit card, payment terms are usually not required, but should be clarified when the credit card is processed for the order.
PO terms are negotiable most of the time. With a little give and take on the part of both buyer and seller, the terms of an order can be changed to appease both parties. Some conditions of the purchase order are not negotiable and the buyer or seller should indicate this at the beginning of the negotiation.
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