A purchase order is a written contract issued by a buyer to a seller. The purchase order is often called a PO. It details the products that the buyer wants to purchase and contains product description, quantities, payment terms, delivery dates and shipping details. It may be sent by fax or by email.
A purchase order is a legal offer to buy products; however no contract exists until the seller confirms acceptance of the purchase order. Once the seller accepts, they will be expected to deliver the products respecting the product details, shipping date and price indicated in the purchase order. This is why before confirming the purchase order, it is important to review it carefully to make sure all of the conditions of the order are acceptable and that you will be able to deliver the product as specified. If there are any questions or concerns about the purchase order, or something needs to be amended, it is important to communicate this clearly to the buyer. It is better to be clear in the beginning than to have problems arise later on.
Steps in receiving and confirming a purchase order:
1. Carefully review the purchase order:
- Are the prices correct?
- Are there any doubts or concerns about what products are being ordered or any changes to the product that have been requested?
- Can you produce the order on time for the delivery date requested? Do you have materials and labor needed to fill the order on time?
- Are the payment terms and payment method acceptable?
- Are there any special instructions regarding labeling, packaging or shipping that you need to be aware of or that may add to your costs or the time needed to produce the order?
- Can you obtain all of the needed exporting documents?
2. Communicate any concerns, questions or problems:
If there is anything that you are concerned about in the purchase order, tell the buyer immediately. If any changes need to be made to the purchase order, it is better to call or send an email explaining the change than to send a confirmed purchase order with something altered on it or to not communicate the need at all. With a phone call or email, you can be assured that the buyer is aware of the change and the reason for it and can issue a corrected purchase order.
3. Confirm the purchase order:
Once you have seen that everything in the purchase order is acceptable, and you are certain that you can meet the order deadline and specifications, send a letter (by fax or email) to confirm your acceptance of the order. Include the purchase order number in your acceptance of the order. Confirmation of the order should be timely. If you are unable to confirm the order within 24-48 hours of receiving it, then at a minimum communicate to the buyer that you have received the order and that you will send the confirmation shortly.
4. Buyer’s acknowledgement and requesting pre-payment:
Make sure to ask the buyer to acknowledge that they have received your confirmation of the purchase order and understand you are starting production. If the purchase order specifies a pre-payment to start the production of the order, you will need to write to the buyer to request the deposit so that you can start the order. The request for the pre-payment can be sent at the same time you confirm the order. In most fair trade contracts, buyers prefinance orders, but you often have to request it to receive it; it is not sent automatically.
Purchase orders can vary in format, but they should always include the following information:
- Buyer’s name and address
- Purchase order number
- Date purchase order issued
- Seller’s name and address
- Product description: this should be a detailed description of product, including measurements, size, color, materials. some buyers will include a photograph.
- Buyer’s product code number
- Deller’s product code number
- Quantity ordered, price per unit, total cost per item
- Total amount of all items on the purchase order
- Method of shipping and shipping information
- Final shipping/delivery date
- Method of payment and payment terms
- Special instructions for labeling, packaging, packing, documents, insurance (if needed)
- Buyer’s signature
- After receiving an order for a musical instrument made of gourds, the seller noted that the dimensions of the gourd would vary, and not be exact, since gourds grow different sizes. The buyer and seller agreed on an acceptable size range.
- An artisan group realized they would need more time than specified on the purchase order to complete a very large order. They explained to the buyer that if the order was rushed, the quality could not be guaranteed. The buyer agreed to extend the delivery date.
- Upon receiving a purchase order, a seller realized that the packaging materials requested by the buyer would increase costs significantly. They communicated this to the buyer, and an increase to the final payment was negotiated.
- An artisan group confirmed a purchase order after reviewing only the product information, price, and delivery date. They neglected to notice that the buyer had requested specific labels be attached to each product. The order was shipped without the labels. The buyer was dissatisfied with the service and did not place a repeat order.
- A group new to exporting was excited to receive a purchase order. After confirming the order, they could not get the color of cloth requested in the order. The order was sent a month late while they waited for the materials they needed to produce the order. Because of the delay, the buyer lost confidence in the group and found a different group to make the next order.