Is a purchase order a contract?

A woman reviews a purchase order to verify items received in a shipment.

Explore the differences between a contract and a purchase order to create a better experience for your customers.

Businesses create contracts and purchase orders to enter into legally-binding relationships with customers or other companies. Although the two are similar, understanding the difference between a contract and a purchase order is important — especially for documentation purposes. Want to know if a purchase order is actually a contract? Read on to learn the answer.

Let’s talk about contracts.

A contract is a relatively broad term for a legally-binding document that outlines an agreement between two or more parties. Contracts determine the conditions of an agreement, personal or professional, such as:

The value of a product or service
The duration of an agreement
A legal obligation to complete a task, or not take a particular action

Contracts take several forms and can be either a written or oral agreement. A few examples of common business contracts include:

Non-Disclosure and Non-Compete Agreements
Real Estate Lease Agreements
Employment Agreements

What is a purchase order?

In general terms, a purchase order (also known as a PO) is a document sent from a buyer to a seller, distributor, or manufacturer requesting to purchase a product. Plus, a purchase order becomes a legally binding contract after the seller accepts the order.

Once accepted, the buyer is legally obligated to submit payment for the product, and the seller is legally obligated to deliver or produce the product.

Using purchase orders for business transactions is a great way to reduce liability for both consumers and business owners. This is largely due to the amount of clarity that they can provide regarding every transaction made. While you can make purchase orders manually, many CRMs and business platforms offer ways to complete this form of documentation automatically.

What is a blanket purchase order?

Blanket purchase orders are still considered true and legally binding. They are generally used in place of a traditional purchase order in the case of a larger purchase—namely, one that requires many payments over a set period of time.

Using a blanket purchase order in this context can streamline the ordering process for buyers, and can help business owners cut costs. With more automation in the purchasing process, businesses can expect to save big on administrative costs and managerial time spent managing each order.

There are two main types of purchase orders:

Standing orders. These are used to establish relationships with suppliers, and state intent to purchase services over a set time.
Open orders. These types of orders are ones that have been placed with intent, but haven’t been fulfilled by the provider.

Purchase order documents typically include at least:

Contact information for the buyer and seller
A description or unique value identifying the product requested
The quantity of product
The cost per unit and total cost

Because manually filling out purchase order forms is time-consuming, many businesses choose to digitize the process with a business solution and e-signature software like Acrobat Sign or other purchase order software. They make it easy to create, customize, send, and sign purchase order agreements without having to print a single document. Plus, your purchase orders are safe and secure because every e-signature has end-to-end encryption.