Purchase Order › PO terms and conditions

Terms and conditions for a purchase order

The items tell the supplier what to send. The terms tell them how: when, where, in what condition, and when they will be paid. Short, clear terms protect both sides.

Why terms matter

In India a purchase order that the supplier accepts, in writing or by supplying the goods, becomes a contract between you under the Indian Contract Act. If there is a dispute, the terms on the PO are what both sides point to. Terms that are not written are hard to prove.

Sample terms you can adapt

1. Price: "Rates are fixed for this order and include packing. GST extra as shown."
2. Delivery: "Deliver by the date shown, between 10 am and 6 pm, to the Deliver to address."
3. Freight: "Freight paid by the supplier up to our door" (or "Freight to pay, by our transporter").
4. Documents: "Send the tax invoice and delivery challan with the goods. Quote our PO number on both. For goods worth more than the e-way bill limit, the e-way bill must travel with the vehicle."
5. Inspection: "Goods will be checked within 3 working days of receipt. Short, damaged or wrong goods will be returned at the supplier's cost."
6. Late delivery: "If goods are late we may cancel the order for the late part without any charge."
7. Payment: "Payment within 30 days of receiving the goods and a correct tax invoice, by bank transfer."
8. Returns: "Returned or rejected goods will be adjusted by the supplier's credit note."
9. Cancellation: "We may cancel any part not yet dispatched by written notice."

Type your terms once in the maker; you can copy a saved purchase order next time and change only the items.

Paying small suppliers on time

If your supplier is registered as a micro or small enterprise (Udyam registration), the MSMED Act sets limits on how long you can take to pay: the agreed period, which cannot be more than 45 days from accepting the goods, or 15 days when no period was agreed. Late payment carries interest at three times the bank rate set by the RBI. Income tax rules also allow the expense only when such a supplier is paid within these limits, so a late payment can raise your tax for the year.

Common mistakes

• Writing "as discussed" instead of the actual rate or date.
• Leaving out freight, so the supplier adds it on the invoice.
• No inspection period, so damage found a week later is argued over.
• Payment terms longer than 45 days for a micro or small supplier.

Next: how the PO, challan and invoice fit together.