4 Critical Legal Implications of Purchase Orders

Nov 14, 2021 | Basic 101: Introduction to procurement

Stawan photo


Nov 14, 20213 min read

A purchase order is a legally binding document between a buyer and a seller outlining the details of a transaction. To protect both parties, it is important to include all necessary information, such as the items being purchased, delivery date, and payment obligation. Both parties must sign the purchase order and keep a copy for their records. Understanding the legal implications of purchase orders helps ensure a smooth and successful transaction.

A purchase order is a legally binding document that outlines the details of a purchase between two or more parties. It is important to understand the legal implications of purchase orders, as it can help protect both the buyer and the seller from potential liability issues. This article will discuss what the legal requirements are for purchase orders, the potential liability issues that can arise, and how businesses can protect themselves legally with purchase orders. Finally, it will cover what kind of insurance a business should have to cover purchase orders. 

What are the Legal Requirements for Purchase Orders? 

In order for a purchase order to be legally binding, it must contain all the necessary information. Here are a few examples to help you better understand the legal implications of purchase orders: 

  • Delivery obligation: If a seller accepts a purchase order, they are obligated to deliver the goods or services outlined in the purchase order within the specified time frame. If the seller fails to deliver the goods or services on time, the buyer may have the right to cancel the purchase order and seek damages for any losses they suffered as a result of the late delivery. 
  • Payment obligation: On the other hand, if a buyer accepts a purchase order, they are obligated to pay the price outlined in the purchase order for the goods or services received. If the buyer fails to pay, the seller may have the right to seek payment through legal means, such as a lawsuit. 
  • Quality of goods: The purchase order may include specific quality requirements for the goods being purchased. If the goods do not meet the specified quality requirements, the buyer may have the right to reject the goods and seek a refund or replacement. 
  • Changes to the agreement: Any changes to the terms of the purchase order must be made in writing and agreed upon by both parties. If either party makes changes without the other party's agreement, it could be considered a breach of contract and could result in legal consequences. 

Identifying Potential Liability Issues with Purchase Orders 

One of the main potential liability issues with purchase orders is that if the buyer does not receive the items as specified in the purchase order, they can sue for breach of contract in court. It is also possible for either party to sue for misrepresentation if something was misrepresented on the purchase order. Additionally, if either party fails to fulfill their obligations under the purchase order, this could lead to a lawsuit. 

In addition to the potential legal issues, there are also financial risks associated with purchase orders. If the buyer does not pay for the items as specified in the purchase order, the seller may be left with unpaid invoices. This could lead to a cash flow issue for the seller, as well as potential legal action if the buyer refuses to pay. Furthermore, if the seller does not deliver the items as specified in the purchase order, the buyer may be left with a shortage of goods, which could lead to a loss of revenue. 

How Can a Business Protect Itself Legally with Purchase Orders? 

The best way to protect a business legally with purchase orders is to ensure that all necessary information is included in the purchase order. This includes all relevant details of the transaction, such as the names of the parties involved, the items being purchased, the quantity of each item, the price of each item, the delivery date, and any relevant terms and conditions. In addition, it is important to make sure that both parties have signed the purchase order in order for it to be legally binding. 

It is also important to keep a copy of the purchase order for your records. This will help to ensure that the terms of the purchase order are met and that any disputes that may arise can be resolved quickly and efficiently. Additionally, it is important to review the purchase order regularly to ensure that it is up to date and that all of the information is accurate. 

In conclusion, purchase orders are legally binding agreements that outline the terms of a sale between a buyer and a seller. Both parties have obligations and rights under the terms of the purchase order, and failure to fulfill those obligations can result in legal consequences. The acceptance of a purchase order creates a contract between the parties, and it is important for both buyers and sellers to carefully review the terms of the agreement before accepting it. This helps to ensure that both parties are aware of their obligations and rights under the contract, and helps to minimize the risk of disputes and legal issues. Understanding the legal implications of purchase orders is critical for both buyers and sellers, as it helps to ensure a smooth and successful transaction. 

POs generated on FactWise include user-defined Terms and Conditions, company information for buyer and seller including addresses, identifications and the person-in-charge, any additional comments and all item information including item details and specifications, payment terms, and delivery timelines. POs can be auto-generated or manually created on FactWise source-to-pay. FactWise improves payment compliance by up to 93% and efficiency by up to 20%. 

About the Author

Stawan is the founder and CEO of FactWise. Before founding FactWise, Stawan was the NA TMT-Procurement Leader at McKinsey. Passionate about procurement, Stawan has 15 years’ experience in enabling clients of all sizes to achieve business impact via procurement.


Show all

No comments to show

Suggested Articles



Privacy Policy

Terms & Conditions

©Copyright 2024. FactWise. All Rights Reserved.