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What are Purchase Order Conditions?

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  • Written By: Kathy Heydasch
  • Edited By: O. Wallace
  • Last Modified Date: 07 December 2016
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    2003-2016
    Conjecture Corporation
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When a company purchases goods or services, it is usually done via a purchase order. Since a purchase order is a legal agreement between a buyer and a seller, it is important that the conditions of the order are laid out clearly and precisely in order to prevent any disagreements between the two parties. Common purchase order conditions include cost, description of materials, date expected, and freight obligations.

One of the most important of the purchase order conditions 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 on the purchase order, he or she must indicate so to the buyer. If the seller proceeds with the order, he or she is obligated to sell the product to the buyer at the price indicated on the purchase order.

A good purchase order has a description of materials which leaves no element of doubt. The issuer of a purchase order should be as specific as possible in order to avoid any confusion later. Expected goods or services must be described with as much detail as possible within the body of the purchase order.

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Turn-around time is another of the purchase order conditions. Large manufacturers, or even small manufacturers with just-in-time inventory, often require long lead times in order to process an order. If a seller cannot meet a specified deadline, he or she must indicate so to the buyer and not accept the order unless the deadline time is negotiable.

Freight On Board (FOB) is a popular condition of purchase orders. This indicates who takes responsibility for the cost of the freight, and from what location. If a buyer in New York City purchases a truckload of rugs from San Francisco, the terms might be “FOB New York City” which means that the seller must pay for the freight to get to New York City. If the terms are “FOB San Francisco”, this means that the buyer is responsible for the cost of transit. Freight terms are particularly tricky when dealing with international shipping, and the buyer and seller must both be clear on who is paying customs duties and taxes as well as for the actual freight transit.

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 Receipt.” If a purchase order is paid with a credit card, there is usually no need for payment terms to be designated, but there should be clarification on when the credit card is processed for the order.

Purchase order conditions are negotiable most of the time. With a little give and take on the parts of both the buyer and seller, the terms of an order can be modified to appease either party. Some purchase order conditions are non-negotiable, and the buyer or seller should indicate that at the start of negotiation.

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