Are Purchase Orders Legally Binding Contracts?

online purchase orderYes. Purchase orders are legally binding contracts between purchasers and suppliers. They’re the initial contracts between two entities or individuals, signifying the initial handshake or verbal promise concerning the order of an item and its promised payment.

However, there’s always the possibility of something going awry during the procurement process chain. But if both parties agree on the specific actions that could be taken if something doesn’t go as planned, the possibility of lawsuits would be slim to none. Also, make sure to implement a purchase order system using the right tools like automated purchasing software to help reduce the risk of inaccurate orders and provide both parties proof of transactions.

Below are some common situations that you need to include in the terms and conditions of your purchase orders to avoid lawsuits.

Backorders or delays

Could you send delayed payments or should your supplier offer a refund in case you paid upfront? Could you cancel an order if it was delayed? Include specific timeframes for these.

Non-payments

Could your supplier refuse future deliveries or seize the items that have already been delivered? Would both parties prefer arbitration or mediation prior to resorting to litigation in situations like these?

Broken terms

Could both parties agree to provide the offending party ample time to resolve an issue? Would breaking a term enable the other party to cancel or rescind the contract? Would you be allowed to revise the contract to include only some of the items?

Governing laws

Note that laws differ from state to state and country to country. This means that you should determine which laws could apply to your agreement so that you’d have a clearer idea of your legal options and what could affect the terms and conditions you include and exclude in your purchase orders.

Put simply, if something goes wrong during the procurement process that you failed to account in the terms and conditions of a purchase order, then there’s a chance that you might face your supplier in court. So make certain that you take into account everything that could go wrong, and how both parties must act in such situations.