What a Purchase Order Actually Obliges Both Sides To
Why this matters
Most shops treat the purchase order as a receipt for a decision that was already made. It is the opposite. In almost every institution, your proposal is a piece of correspondence and the purchase order is the contract document, and where the two disagree the purchase order wins. It carries terms you did not write, on a page you may not have read, with a change-authority clause that means the person who asked you to do the extra work almost certainly could not authorize it. Read it once, properly, field by field, the way accounts payable will read it, and most institutional payment trouble stops happening to you.
What it is, legally, and why that fork matters
A purchase order is an offer from the buyer. You accept it by performing, or by returning an acknowledgement, and at that moment a contract exists on the buyer's terms.
Which body of law governs depends on what you are selling, and the answers differ. Where the contract is predominantly for goods, Article 2 of the Uniform Commercial Code applies, as enacted by the state whose law governs the order, which is not the same text everywhere and which Louisiana has not adopted at all. In the uniform version, acceptance can be by shipment or by promise at 2-206, and terms that differ between your quote and their order run through 2-207. Check which state's law the order says governs; it is often not yours. Where it is predominantly for services, Article 2 does not apply and common law governs, under which the last form exchanged before performance generally sets the terms. Courts sort mixed jobs, which is most field-service work, by which purpose predominates.
The two branches do not translate the same way. Under common law the last form exchanged before performance generally sets the terms. Under UCC 2-207 it does not: additional terms in the buyer's order can drop out if they materially alter the deal, and directly conflicting terms may cancel each other with the Code's default rules filling the gap. What is the same on both branches is the practical lesson: you have far more control before you mobilize than after. If your quote's terms matter to you, they have to be accepted in writing before you mobilize rather than attached to your invoice afterward, and where a term is worth real money, that is a question for your attorney and not for a form.
The fields, and what each one obliges
Every field that carries an obligation, in the order it appears on a typical institutional order.
Purchase order number. Obliges you to put it on every invoice, packing slip, service report and piece of correspondence. Its absence is the most common cause of an invoice sitting unpaid with nobody telling you.
Vendor number and remit-to address. Obliges them to pay the entity named. If your remit-to changed and their vendor master did not, payment goes to the old address and the correction takes weeks. Update it in their portal before you invoice.
Ship-to versus bill-to. Two addresses, not interchangeable. Ship-to is where the work or material goes; bill-to is usually a central accounts payable office in another building. Invoicing the ship-to address is a common way to lose a month.
Line items, with quantity and unit of measure. The field shops underestimate. Accounts payable pays lines, not totals: three lines on the order against one lump on your invoice cannot be matched, and it comes back. Mirror their line structure exactly, in their order, in their unit of measure.
Not-to-exceed or total authorized. The ceiling. Work beyond it is not payable simply because it was necessary, and a technician's judgment on site does not raise it. Where the order is a firm fixed price rather than a not-to-exceed, the opposite exposure applies: you carry the overrun, and efficiency is yours to keep.
Period of performance. Start and end dates. Work outside the window may be unpayable even at the correct price, particularly across a fiscal year boundary where the funds have been swept. Check it against your schedule the day the order arrives, not the week you plan to start.
Account or fund coding. Their bookkeeping, and your early warning system. If the code says operating and your scope is a capital improvement, someone will catch it later and the correction is painful. See related: Capital Money and Operating Money Are Not the Same Money.
Payment terms. Net 30, 45, 60, occasionally longer. Read the next section before accepting these casually.
Terms and conditions, incorporated by reference. The line that says terms are available on the reverse or at a stated location. As a general matter those terms bind you whether or not you opened them, and they routinely include indemnification, insurance requirements, warranty periods longer than yours, retainage, and a clause voiding any conflicting vendor terms. Read them once per customer, not once per order, and have your attorney read the indemnification, warranty and retainage clauses once per customer too: indemnity is limited by anti-indemnity statutes in many states and retainage is regulated by statute in many others, and neither is visible on the face of the order.
Buyer and change authority. The named buyer is usually the only person who can amend the order. The facilities director cannot; neither can the maintenance supervisor. Their verbal go-ahead is real as a technical approval and worth nothing as a funding authorization. See related: Why Work Done Without a Purchase Order Often Goes Unpaid.
Acceptance and delivery requirements. What counts as completion in their eyes: a signature, a closed ticket in their work-order system, a closeout package. Until that condition is met your invoice is not a proper invoice, however finished the work is.
Required attachments. Certified payroll on prevailing wage work, certificates of insurance, material safety data, warranty documentation. Missing attachments hold payment silently. See related: What Prevailing Wage and Certified Payroll Actually Require.
Net terms are a working capital ratio, not an inconvenience
Terms decide what size of institutional customer your shop can safely carry, and it is arithmetic rather than negotiation.
Keep crews continuously occupied on an account paying net 60 and you are financing roughly two months of that account's labor and material at every moment. Two months is a sixth of a year, so you need working capital of roughly 17 percent of the annual revenue from that account just to stand still.
That is the optimistic version. Add a typical 10-day lag between finishing and invoicing and payment arriving about 15 days past terms, and the money is out about 85 days rather than 60. Eighty-five days is roughly 23 percent of a year, so the requirement rises to about 23 percent of that account's annual revenue: between the clean assumption and the realistic one it grew by about a third.
Two consequences follow. The invoicing lag is the only one of the three you fully control, and closing it from 10 days to 2 removes about 2 percent of annual account revenue from the requirement, a better return than most collections effort. And growing an institutional account does not free up cash, it consumes more, which is why a shop that wins a large district can be in trouble four months later while profitable on paper. See related: Cash vs Profit: Why They're Different.
Where the buyer is a public body, terms are frequently statutory rather than negotiable. Federal agencies pay under the Prompt Payment Act at 31 U.S.C. 3901 and following, and most states have their own statutes for public entities. In nearly all of them the clock starts on receipt of a proper invoice: one carrying the order number, matching the line structure, and including whatever attachments the order required. An improper invoice does not start the clock. Federal agencies are not silent on this, though: the Prompt Payment implementing rules at 5 CFR 1315 require the agency to notify you of a defective invoice within a short defined window of receipt, and where it fails to, the clock is adjusted in your favor. State prompt-payment statutes vary widely in whether they impose any such duty, and a private institution owes you nothing on it at all. Find out which of the three you are dealing with before you read silence as acceptance.
Standing orders, and the field that runs out
A standing or blanket order authorizes a category of work over a period, with releases against it, up to a cap. It is the best structure an institutional relationship can have, and the cap is what shops fail to watch.
The rule, with its unit of analysis and its trigger. Measure per purchase order, at monthly close. Raise an increase request when consumed value exceeds the elapsed share of the term by more than 10 percentage points and at least 3 months of the term remain. Size the request to the projected overrun rounded up to the next whole increment, so you are not back for a second amendment in the same year.
Run it. A one-year standing order for routine service, written as a not-to-exceed of 400 labor hours plus material. At the end of month 7, consumed hours stand at 310.
Elapsed share of term: 7 of 12 months, 58.3 percent. Consumed share of cap: 310 of 400, 77.5 percent. The gap is 19.2 points, clearing the 10-point trigger, and 5 months remain, clearing the 3-month condition. Both halves met, so the request goes in now.
Size it. 310 hours over 7 months is about 44.3 a month, so 12 months at that rate is about 531, roughly 33 percent above the 400 authorized. The bare overrun is 131 hours; round up to 150 so normal variance in the last five months does not force a second amendment.
Why the trigger has two conditions rather than one. The percentage gap alone fires in month 2, when one heavy month puts consumption ahead of elapsed term with no signal in it. The remaining-term condition alone lets you sail to month 10. Together they catch a real trend while an amendment can still be processed, and an amendment takes weeks.
The failure mode. Nobody watches the cap, month 11 arrives, and a technician runs a call against an order with no room left. That work is unauthorized whatever the ticket says, and you are negotiating after the fact against a closing fiscal year. Track it per order rather than across all orders from that customer: a different order having room does not make this one payable.
The after-hours release that should not be taken
A standing order does not authorize work the site cannot cover at that hour, and this is where an administrative habit becomes a safety problem.
A technician dispatched at two in the morning on a standing release still cannot perform hot work without a permit and a fire watch, and at that hour the institution frequently cannot supply either. The permit is not paperwork about your work; it protects everyone sleeping, studying or recovering in the building from a fire that starts in a concealed space after you leave. When it cannot be issued, reach the on-duty engineer first and say what you are about to isolate and what it serves, because the consequence lands on people asleep in the building and that decision is theirs. Then isolate the failed equipment, agree what covers the lost service until you return, temporary heat, bottled water, a portable unit, or a documented acceptance that it waits, secure the area, document what was found, and return when the permit and the watch exist. NFPA 51B sets the watch and the post-work observation period, and neither shortens because the building is quieter.
How to verify you are handling their orders correctly
Pull the last three purchase orders that customer issued you and check five things against your own invoices: the order number appears, the line structure matches theirs exactly, the invoice went to bill-to rather than ship-to, the work fell inside the period of performance, and every required attachment was included.
If any invoice failed one of the five, that is the reason for a payment delay you may have blamed on the customer being slow. And if you cannot name what their terms and conditions say about indemnification and insurance without looking, read them this week rather than during a dispute.
References
- Uniform Commercial Code Article 2, including 2-206 on acceptance and 2-207 on additional terms, applicable where a contract is predominantly for goods rather than services
- Prompt Payment Act, 31 U.S.C. 3901 and following, for federal agency payment timing on receipt of a proper invoice; state prompt-payment statutes for public entities
- NFPA 51B, fire prevention during welding, cutting and other hot work, including fire watch and post-work observation
- See related: Why Work Done Without a Purchase Order Often Goes Unpaid; Capital Money and Operating Money Are Not the Same Money; The Payment Terms That Make or Break Commercial Cash Flow