Purchase Orders versus Contracts: What’s the Difference?
Posted on February 12, 2024 |
In the construction industry, just like any other, there are plenty of nuances that can be confusing. In this entry, we will cover the importance of purchase orders, contracts, their differences and why they matter for your business.
First, we must define a couple of key terms.
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A purchase order (PO) is a document sent from buyers to sellers requesting an order for a product. When accepted by the seller, a legally bound contract occurs through the transaction between the buyer and the seller: money in exchange for the product. The buyer’s role is to create a detailed purchase order that includes descriptions, quantities, discounts, and product prices to avoid confusion. Ideally, they should also state payment terms and shipment dates and conditions. Typically, the purchase order results from a purchase order request.
There is a blanket purchase order, also known as a call-off order or blanket purchase agreement, that the customer places with a supplier. This type of PO allows for multiple delivery dates over a negotiated period to set predetermined pricing. In addition, blanket purchase orders are also legal documents once accepted by the supplier. To be compliant, however, you still need a formal contract.
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