Customer Purchase Orders, Errors on POs and their Impact on Collections

Sales begins when a customer presents a purchase order to the seller. The customer's purchase order represents an offer to purchase goods at the price listed on the PO - and subject to all of the terms and conditions included on the PO including the "boilerplate" language that may appear on the back of the purchase order.  Many companies are happy to accept purchase orders even when the terms and conditions listed on the customer’s P.O. (inluding the price) are wrong.   The correct approach is to hold the PO and the shipment until a correction in writing is received from the customer.  A customer can be asked to fax their correction to the creditor company.   Why?  Because the PO is the buyer's offer. Shipment is the seller's acceptance of the offer contained in the PO including any terms and conditions of payment.  Consideration is the price the buyer offers to purchase the goods.  Offer + Acceptance + Consideration = The Formation of a Contract. 

In the absence of a previously signed written agreement between buyer and seller which states that the agreement will supercede any terms that may subsequently appear in or on the customer's PO, the terms and conditions of sale as described in the purchase order  will apply to the customer and the order in question.  For this reason, care must be taken to either:

(a) Read, evaluate, accept and follow the instructions and conditions set forth in the PO, or
(b) Require the seller to amend the purchase order in writing.

A certain percentage of customer payment deductions (in some companies a significant percentage of deductions) are a direct result of a lack of attention to price and terms and conditions listed on customer purchase orders. From the customer's perspective, a failure on the part of a supplier to carefully review and comply with the purchase order terms and conditions (or reject and return the PO) results in a deduction that the customer feels that it is entirely justified in taking.  Some suppliers require that all orders be accompanied by a hard copy purchase order. Others limit this requirement to larger dollar orders. Without a hard copy PO on file, the seller has no way to prove that the prices and terms of sale shown on the company's invoice are identical to those quoted to the customer. This can become fertile ground for customer deductions and withheld payments.

To save time, the customer can be asked to fax their correction.  There is always the chance that business will be lost if the creditor demands changes to the customer’s purchase order. However, since errors on purchase orders can result in suppliers being unable to collect [or only able to collect a portion of the amount due] many creditor companies are prepared to take this risk. This is a decision that should be made by senior management.

Edited by Michael C. Dennis, author of "1001 Collection Tools and Tips."  Mr. Dennis can be reached by email at mcdennis13@yahoo.com