Q&As: Purchasing Methodically

Q: How much detail does a purchase order need?

A: The most important detail on any purchase order is the price. You also need to clearly specify the items being purchased, the quantity being ordered, and any aspect of the goods that need clarification, such as size, color, or model type. Other issues that you may want to specify are payment terms, freight method, applicable discounts, and delivery dates. If you don’t specify payment terms, the vendor may demand payment with delivery. Be careful with freight charges. Generally they cost extra, so make note on the purchase order if they are included in the purchase price.

Don’t be tempted to verbally specify details to a sales representative. The benefit of a written purchase order is that it will get forwarded to the people responsible for filling orders and the chances of confusion will be lessened.

Q: Should I arrange for freight?

A: For smaller bulk items, you will typically be better off leaving the shipping up to the vendor. The vendor probably does volume shipping and is eligible for discounts. Be aware, however, that more and more firms are sending merchandise via the fastest and generally most expensive way possible. Ask if the vendor intends to use an overnight air courier. If you don’t need this service, request a less expensive delivery.

If you are ordering large bulk items, particularly full tractor-trailer loads, you can usually get a better price through your own negotiations with trucking companies or independent tractor-trailer operators.

Q: What kind of scams should I be on the look out for?

A: You should be leery of buying from any firm that pitches you over the phone but refuses to send you a brochure or catalog. Also be leery of firms that don’t accept credit cards and insist on check or cash prepayments. Don’t fall for hard-sell offers to advertise your products on national TV for a fee, and never pay for publicity coverage!

Q: Do I have to pay for an overage?

A: In some industries, it is customary to consider a small variance in a delivery quantity as acceptable. This is particularly true of custom items, such as printed material, because it may be difficult to halt the manufacturing process at a precise count. In industries where variances are allowed, the acceptable variance is usually plus or minus 10 percent of the ordered quantity. Specify acceptable variances in your purchase order and check quotes from vendors for variance stipulations.

Q: What do I do if the goods appear damaged in transit?

A: If the container in which your goods are delivered is damaged, make note of this when you sign for the delivery. Otherwise, you are basically testifying to an undamaged delivery. Contact the vendor immediately if goods are damaged. Although goods damaged in transit are generally the responsibility of the transit company, it is worth trying to get the vendor to arrange for reimbursement—it will save you both time and effort.

Q: What standard determines unacceptable quality?

A: If a dispute finds itself in a courtroom, a judge will examine the purchase order and the vendor’s quote for quality instructions. Catalog or advertising claims might also be considered. And the quality of any prior deliveries from the same vendor will also likely be taken into account. Beyond this, acceptable industry standards and expert testimony from witnesses for either the defendant or the plaintiff will be reviewed. But try to settle this out of court.

About Bob Adams

Bob Adams is a Harvard MBA serial entrepreneur. He has started over a dozen businesses including one that he launched with $1500 and sold for $40 million. He has written 17 books and created 52 online courses for entrepreneurs. Bob also founded BusinessTown, the go-to learning platform for starting and running a business.