In order to avoid future conflicts or customer problems, instruct your customer not to commit or spend any funds without issuing a signed purchase order to your firm first. Declare upfront to potential customers your firm only performs work with valid complete purchase orders. Tell them the work clock does not start until all agreements are signed.
Define all of the elements of the purchase. Eliminate the possibility of misunderstandings and potential conflicts with written detailed purchase orders that state quantities, tooling, pricing, who pays freight, tax status of the purchases and what items are to be shipped on specified due dates. Customers and clients become irate when they do not receive what they want; purchase orders help to avoid these disputes by spelling out exactly what is to be made, provided, serviced or repaired before either party has invested substantial time or money into the venture. Remind the customer that you want this to be a highly successful and well run project and getting all the particular deadlines and deliverables well documented up front will help to ensure success.
Tell the vendor not to spend any money until the purchase order is final. Be specific during your meetings with him not to spend any money nor make any commitments until the agreement with your firm is completed and signed. You do not want the vendor shipping supplied material, components or anything else to you until all of the documents are signed and all parties agree to the deadline schedule, definition of deliverables and assignments of duties. Tell your vendor you want him to agree and be comfortable with all the aspects of the work contract before either party spends anything. Let your vendor know you want to proceed, reducing risk and increasing the likely probability he will be happy doing business with your firm if the details are well planned.
Use a purchase order substitute for customers when necessary. If your customers do not complete and issue purchase orders and tell you this emphatically, create a substitute detailed sales acknowledgement (purchase order substitute issued by you) and do not proceed until he has agreed to the terms, signed and dated the document and returned the original to you. Tell him instead of his issuing a purchase order, all he has to do is sign the sales order acknowledgement issued by you that states exactly what he is buying.
Do not deal with buyers who will not sign anything; verbal is no longer valid. Be very suspect of a customer who wants your company to spend money, but will not issue a purchase order and will not agree to sign your document detailing the very things upon which you both discussed. Proceed cautiously. There is something wrong with this potential customer who avoids committing himself. If he cannot, you cannot.
Purchase orders eliminate most arguments. Purchase orders make your life easier and less difficult to plan. Explain that you do not want to disappoint him and you want to be sure that you are doing what he expects of an excellent vendor. Tell him that in the past you have made the very costly mistake of proceeding, and subsequently disappointed the customer because you both were not thinking of the same thing.
Remind your customer you are protecting his wallet. Tell your customer you also do not want to waste his money; thus, you must insist on a purchase order or signed sales acknowledgement before either party begins committing any funds. The vast majority of valid professional companies have no problem with these requests. They are normal. Real companies will agree automatically. They are well run and understand the avoidance of liability. They also understand and operate under normal business practices. It is the others in the market from which you must protect your company. They are to be avoided
Upfront, know what you are committing to and which risks are involved. Get all the details of your agreement in writing; thought out in detail. Ask numerous ‘what if’ questions and pose multiple scenarios. Then get the detailed document signed and dated by your customer. Sleep well at night knowing you planned as well as possible for protecting your company’s assets, a great profit idea.