In international trade, two documents that are often confused are the Purchase Order (PO) and the Sales Contract. Although both express the intention to buy and sell goods, their legal role and usage are quite different. So, what exactly sets them apart?
1. What is a Purchase Order (PO)?
- Definition: A Purchase Order is a document issued by the buyer, expressing the intent to purchase goods or services under specific conditions (quantity, price, delivery date, etc.).
- Key features:
- Usually prepared by the buyer.
- Not always legally binding unless accepted by the seller.
- Commonly used for repeat orders, small-value transactions, or short-term deals.
2. What is a Sales Contract?
- Definition: A Sales Contract is a formal agreement between buyer and seller regarding the sale and purchase of goods or services.
- Key features:
- Legally binding once signed by both parties.
- Typically includes detailed clauses: rights and obligations, payment terms, delivery terms, insurance, penalties, etc.
- Commonly applied in international trade, large-value, or complex transactions.
3. Comparison between Purchase Order and Sales Contract
| Criteria | Purchase Order (PO) | Sales Contract |
|---|---|---|
| Issued by | Buyer | Seller or both parties |
| Purpose | Express purchase request | Legally bind buyer & seller obligations |
| Legal effect | Binding only when accepted by seller | Binding once signed |
| Content | Brief: product, quantity, price, delivery date | Detailed: Incoterms, payment, delivery, insurance, penalties |
| Application | Small/repetitive orders | Large, international, long-term deals |
4. Which one should your business use?
- For simple, repeat transactions → A PO may be sufficient, saving time and paperwork.
- For international, high-value, or complex deals → A Sales Contract is more secure to minimize risks and disputes.
Both Purchase Orders and Sales Contracts play important roles in trade, but they are not interchangeable. Businesses should evaluate transaction size, risk level, and legal requirements to decide which document to use.
At Elite Shipping Vietnam, we provide expert consultation on international trade documentation to help businesses minimize risks and optimize efficiency.