For example, purchasing office supplies, a laptop computer, or other items used on a regular basis usually will be done with a PO. Such an arrangement to supply the buyer's continuing needs is sometimes created by a product supply agreement.Ī purchase order is more often used when the purchase is relatively simple, or when there will be repeated purchases of the same type of goods. Other times, a "blanket" purchase order is used that states the complete terms, and other documents-often called releases or calls-are used by the buyer to schedule the specific deliveries. Sometimes both documents are used, with the purchase agreement stating the comprehensive terms of the agreement and POs being used to request deliveries as needed. If repeated purchases or deliveries will be made over time, a mix of documents can be used. Also, if a government contract is involved, the rules or policies of the government agency may dictate the type of document to be used. For example, real estate transactions are conducted with a purchase agreement, not with a PO. Whether a PO or a purchase agreement is used will depend upon the nature of the purchase or the customary practice of the industry. There are no rules about when either type of document must be used. When to use a PO and when to use a purchase agreement With a purchase agreement, the parties have worked out their agreement beforehand, and the purchase agreement is the written expression of that agreement.Ī purchase agreement will contain all of the information that would be in a PO, but is often a longer document that contains additional details. The seller can only accept the offer by signing the document, not by just providing the goods.Ī PO is created before there is an agreement between the parties: The buyer sends the PO to the seller, who then has the choice of whether to accept it. Once it is signed by both parties, it is a legally binding contract.
Purchase agreementsĪ purchase agreement is a legal document that is signed by both the buyer and the seller. Such electronic transmission can be done via email or at the seller's website. Communication of a PO was traditionally done by mail or fax, but now is frequently done online.
It also may include various other terms, which can make it as detailed as a purchase agreement.
Of course, contract law is much more complex than what is explained by this example. Rather, the proposed change in terms makes it a counteroffer by the seller, which the buyer must then accept in order to create a contract. If the seller changes any of the terms, it is not an acceptance. The seller must accept the offer on the terms contained in the offer. For purposes of this discussion, the example will be used of a buyer seeking to purchase goods from a seller.Ī contract is formed when the buyer makes an offer to purchase the goods, and the seller accepts that offer. To understand purchase orders and purchase agreements, it is first necessary to have a basic knowledge of how a contract is created. Understanding the differences will help you determine which to use for your business transactions. The document used to purchase services is more often called a contract or service agreement.Īlthough a purchase order, or PO, and a purchase agreement are both used to make purchases, they operate in different ways. A purchase agreement is also used in real estate transactions. Purchase orders and purchase agreements are both legal documents used in the purchase of goods.
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