Purchase order: another tool in your small business tool kit

If you are buying products or materials from another company, you can often accomplish this purchase with a simple purchase order. A purchase order itself can be a contract. Whether you use your own purchase order form, or the seller’s, take into account the following:

Complete description of the goods

In order to avoid misunderstandings, ask yourself the following questions: Does the purchase order contain a complete description of the goods that you think you are buying? Does the description include all the necessary parts and related items? Are you getting the latest or most updated version or model of the goods that you are purchasing?


Make sure that the price of the item is clearly stated. Ask if the purchase order includes a statement saying that the price sets forth the entire payment required. Be wary of hidden charges, handling fees and delivery fees.


You will want to specify whether or not the seller will deliver the goods or if you will pick them up. Set forth whether the goods will be ready by a certain date and consider imposing a penalty on the seller if the goods are not ready by the designated date.


When is payment due? Is a partial payment required in advance? Next 30 days? Payable over time?

Refund and return policy

What refund and return rights do you have, if any? The seller wants to limit your rights. At the very least, you should get a refund or return right if the goods prove defective, do not conform to your specifications, or are not reasonably satisfactory to you.


How much tax must you pay? Who will pay the tax?


Are you buying the goods based on representations or statements from the seller or the seller’s salesman or agents? If so, make sure that the purchase order states that you are buying the goods based on those statements?


Do any warranties cover the goods? What do the warranties cover? How long are the warranties?[1]

[1] Richard D. Harroch, Small Business Kit for Dummies, (Wiley 2nd Edition)(2004).