Purchasing Terms – What Are They And Which Do You Follow?

Purchasing terms are core to every purchase from a vendor by a company. When a company requires the services of one or more vendor there are always a set of purchasing terms agreed between them. Usually these are set out in writing and the vendor tries to impose their terms and conditions – also known as T & C’s – on the purchaser.

Larger purchasers are able to insist on their own purchasing terms. At the very least, these terms will consist of:

  • Prices: At the very least prices are always agreed.
  • Discounts: Many vendors offer and purchasers expect that when order quantities increase, discounts on prices be provided.
  • Delivery Schedules: When the products will be delivered. When services are procured, this will be a start and end date.
  • Payment Terms: This is when payment is expected, in what format and what fees are charged for late payments.
  • Exception Handling: This describes the process for late, over or under deliveries or non-delivery. Cancellations and changes to orders may also be included.
  • Quality Expectations: Many companies may describe the quality that they expect the products to meet. In retail, there may be different levels of quality, particularly in fresh food. In services, the quality may be expressed in the experience of the staff.
    In manufacturing, this may be with respect to the quality of the raw material to be provided. As quality has a direct impact upon the product price, it is important that all parties’ expectations be positioned correctly.

When more detailed purchasing terms are required, they will also include one or more of the following:

  • Contractual Responsibilities: Who legally has to do what and by when.
  • Green Credentials: Many companies now require recyclable packaging, the least transport possible and natural products wherever possible.
  • Supplier Responsibilities: This includes their legal responsibilities, what they are expected to do and by when.
  • Purchaser Responsibilities: This includes their legal responsibilities, when they are expected to receive the goods, their need to pay promptly etc.
  • Limits of Liability: A group of legal terms that set out the boundaries of the contract.
  • Confidentiality: Most companies require their financial transactions kept confidential.
  • Force Majeure: What is the procedure when unforeseen problems happen? This would cover situations such as fire, flood, strikes etc.

Purchasing terms are often the form of a contract between the purchaser and the vendor and are often negotiated at the start of the business relationship. It is very common for a large purchaser to express their purchasing terms in the form of a Master Agreement that they use for all of their vendors.

Conversely, a large vendor that deals with numerous smaller purchasers will ensure that their purchasing terms are followed by the procuring companies, so the power of the company always seems to prevail.

 

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Purchase Price Index