Key Terms & Definitions

Key Elements of a Purchase Contract

    Ensure you create comprehensive and well-structured contracts to send to your suppliers when ordering complex goods or services.
Key Elements of a Purchase Contract

An image of a purchase contract

Section

Information To Include

Buyer name and address

  • Show the name of your company or organization along with its logo
  • Show the company contact details, including address, email and telephone number
  • Mention shipping address and billing address if the two are different
  • Optionally mention the name, designation, and contact details of the individual creating the order or the individual to contact in case of queries
  • Optionally, you can mention the department within your organization where the purchase is originating

Buyer tax number

  • Depending on your local regulations, you may be required to explicitly mention your tax registration number in order for the supplier to provide you with a tax invoice

Seller name and address

  • Address the supplier by providing the name of the supplier’s company / organization, and contact details
  • If available, mention the name and designation of the sales representative to whom the purchase order is addressed

PO number

  • Provide a unique document number through which the purchase order can be referenced throughout correspondence 

Dates

  • There are several different dates that are mentioned on a purchase order. At the top, is a document date, usually the date the purchase order is created or approved for submission to suppliers
  • Additional dates, clearly labeled, can also be provided, usually at the end of the purchase order within the “Terms and Conditions” section. These can include:
    • Expiry date: The date till which the purchase order is valid. A supplier has to indicate acceptance of the purchase order on or before this date
    • Delivery date: The date by which the order must be fulfilled, goods delivered (or dispatched)
    • Acceptance date: The date (or in some cases the period of time after fulfillment of the order) by which the buyer must indicate acceptance of order completion. If accepted by the supplier, the buyer is allowed a period of time to inspect the goods and decline any items that do not meet requirements such as quality etc.

Bill of quantities / Item list

  • The bill of quantities is a list comprising each of the ordered items, with a clearly specified item name, item description, quantity and unit price for each product or service being ordered
  • This can include additional details and specifications of the items ordered, item codes and SKU numbers
  • Additionally taxes applicable on each item can be enumerated separately
  • The bill of quantities is often summed up at the bottom to show a total order value, and can include subtotals showing a breakdown of the price of goods, taxes, delivery charges, and discounts

Terms and conditions

  • Payment terms: Clearly mention the payment terms agreed with the supplier. This can include specifying whether payment is before delivery or after delivery, and if there are any credit terms provided by the supplier. Credit payment terms can be defined in terms of the number of days of credit offered e.g. 60 days credit or Net 30, Net 45, Net 90 etc. 
  • Shipping and delivery terms: Mention whether delivery is included in the purchase order price or if delivery is separate. Can add further information about mode of shipment and delivery
  • Acceptance terms: Mention any specific terms and conditions governing your acceptance of the delivery, including return, rejection or refund policy agreed with the supplier

Signature and approval

  • At the end of the purchase order, to formally validate the document, a signature can be added or the name and designation of the creator and approver of the purchase order can be provided to confirm the purchase order

Additional Key Elements of a Contract:

  • Introduction, background information, and context (details of buyer, details of project)
  • Definitions and abbreviations
  • Scope of work (this can include the line items and Bill of Quantities)
  • Service level agreements
  • Covenants and representations
  • Term and termination / severability clauses
  • Change management
  • Confidentiality; data protection, intellectual property and breach notification
  • Indemnification
  • Force majeure
  • Severability
  • Governing laws

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