Assume that a customer submits a purchase order listing terms of 90 days from the date of your invoice, rather than your usual terms of net 30 days. If your order-entry department fills the order without addressing the incorrect terms of sale, the customer will claim that the invoice has incorrect dating and you will have to wait the additional 60 days for payment-increasing the credit risk significantly.
You can control this type of risk by insisting that order-entry personnel carefully review the terms and conditions of customers' purchase orders before accepting and processing an order. Order-entry personnel should be instructed to:
- decline to process any purchase order received with incorrect credit terms, and
- hold the order until the customer submits a written amendment to the purchase order correcting the terms.
Companies are often reluctant to take these two steps for fear of alienating the customer and potentially losing the sales.
Unfortunately, nothing short of this will prevent some customers from claiming that the extended terms listed on the purchase order are valid. In order to maintain a sound AR portfolio, the terms of sale for each invoice must be adequately and accurately documented. Inadequate, incomplete, or ambiguous documentation can lead to delinquencies and may ultimately result in your being able to collect balances owed.
Customer purchase orders should be rejected if:
- The terms listed differ from your standard terms
- The pricing on the PO is incorrect
- The return privileges listed on the PO are different from your policy
- Penalty clauses are present on the PO which are not part of your normal terms of sale
- The FOB (freight on board) point is different from your standard FOB terms.
The sales or order-entry department should not process purchase orders containing serious errors or inconsistencies until an amended PO is received from the customer. You should not accept an oral statement or commitment from the customer that the necessary changes will be made - the change must be made in writing.
