In order to understand better how PO financing works, we will go into a little more detail about it. If you have a small business, do not worry about having a specific department to handle this arrangement. A couple of important things to keep in mind is that a purchase order becomes a legally binding document when both parties agree to it, meaning the vendor must satisfy all of the conditions of the purchase order. The vendor will not be able to collect on a purchase order until it has done its part to satisfy the order.
Another crucial element for the success of a purchase order is the wording used on that purchase order. The information needs to be as specific as possible in that order to avoid confusion and make sure the transaction is smooth and straightforward. Some of the important information that should be included is payment options, return policies, and shipping policies, among others.
The payment terms should be agreed on by both parties and understood by the buyer. Any changes or disagreements need to be assessed and resolved before the purchase order is made final.
The date should be included in every purchase order, this can be negotiated between the seller and buyer in advance. The other important thing to be considered and added here is whether that delivery date is firm or if it can be flexible, this will depend on the urgency of the buyer to get the product.
Product Or Service Details
A complete and comprehensive description of the products or services provided needs to be included. This is very important due to the fact that it will hold the vendor to the conditions when the time to pay for the purchase order comes. A vague or confusing description of the product or service can cause a delay in payment.
Unit price, number of units, total price, a subtotal, and any shipping and handling charges, as well as taxes and other fees, need to be included in this section of the purchase order. It is very important to have all this clear information in order to avoid any confusion between the buyer and the seller.
The complete contact information of both parties needs to be accessible for both vendor and seller in case of any issues.
Comprehensive Shipping Information
In order to avoid having the product sent to the wrong location, it is crucial that the buyer checks the correct address has been provided. These shipping details can be found on the purchase order before it is issued. If the customer has special shipping instructions and does not include them on the purchase order, then the buyer will have created an issue that the vendor will not be responsible for.
Most companies have had the struggle of running low on cash flow, this can affect the ability to fulfill a big order from a customer. Not being able to fulfill an order and pay for manufacturing and delivery can cause your company to lose a client to another competitor.
If you are still not sure about how PO financing can benefit your company, here’s a quick summary: