You’ve landed a highly-desired big name client and they’ve sent you a purchase order. What is a purchase order, and how do you work with one?
What’s a purchase order?
Among the different kinds of contracts you will use is the Purchase Order, or PO. These documents are commonly used by larger companies, agencies and institutions — enterprises that are subject to audits — to authorize and track business purchases, including projects assigned to contract workers such as freelancers like you.
Purchase orders follow a standard format and are, in a way, a promise for both parties. The creative promises to deliver the work and the client agrees to pay for it.
Treat POs as legal documents, because that’s what they are.
Purchase orders include a tracking number, and when you invoice for your work, you’ll include the PO number on your invoice.
Can you rely on purchase orders in lieu of using a contract?
Yes and no.
Purchase orders include a limited description of the deliverables — the work being requested — and the amounts that will be paid. They’ll include estimated expenses as well.
Depending on how the company operates, you might be required to sign a PO before you can invoice for the work.
When a client uses a PO system for tracking and paying, I’ll first provide a confirmation letter that includes all the usual stuff my contracts contain: itemized deliverables, number of reviews, development and production schedules, expenses (including a mark-up percentage), what rights transfer and when, ownership of original working files, etc.
In the payment terms section, I’ll state that the PO is accepted in lieu of downpayment.
SIDE NOTE: It’s important to note here that I’ve never been able to negotiate a progressive (installment) invoicing schedule when a client uses purchase orders. I don’t receive a down payment or early payment on the project. So I’m working for free until the project is done and delivered. At that point I can invoice.
This runs contrary to my business policies, but I’m okay with that when the client is reputable. One of the best things about freelancing is that I can be flexible.
ANOTHER SIDE NOTE: The clients I work with that use POs have never not paid me, and I’ve been blessed that they’ve all paid within 30 days of the original invoice date. I have never had to deal with a 60-day, 90-day or 120-day payment schedule.
Steps to take when your client uses purchase orders:
Find out from the client up front what the payment process is. This includes who you send the invoice to — to who’s attention in what department — and how long it will take them to pay.
If you’re not comfortable with extended pay schedules (more than 30 days from invoice date), consider negotiating a higher creative rate. Your basis for the increase can be that you’re assuming greater risk, being that you’re obligated to pay for related expenses (printing, manufacturing, etc) long before you’ll be reimbursed by the client. Value and risk are the basis of business negotiations.
Provide the client with a detailed confirmation letter outlining the specific deliverables, schedules, budget and terms (I cover confirmation letters in the Freelance Road Trip digital course). Be sure you send this letter to your direct report for the project and the appropriate person in their accounting or purchasing department. This confirmation is what they will use to prepare the purchase order.
Review the purchase order carefully. Are the amounts the same as stated in your confirmation letter? Is the schedule the same? Are there any terms that contradict your confirmation letter?
If there are discrepancies, you’re now in negotiation mode: Use a fine-point black pen (not a thick Sharpie®) to line out the incorrect item in the PO and initial next to the item in the margin. Provide a separate addendum sheet containing your corrections.
Send it back to your primary contact at the client’s with a cover letter stating that you’re requesting alterations to the PO and to please see the attached addendum page. (Don’t forget to attached the addendum page.)
State that you’re happy to answer any questions they have, and that you’re looking forward to proceeding with the project upon receiving the updated PO.
You should expect to have another conversation or two about deliverables, schedules and terms.
Be prepared to answer questions and explain the BUSINESS reasons for your requested changes. You should already have policies in place that you’re simply adhering to and that you’ve already communicated to your client.
Your goal is to negotiate the best scenario for BOTH yourself and your client.
When the PO is accurate, sign it and return a copy to your client. Then get to work on the assignment.
POs confirm what you’ve agreed to
Keep in mind that the person issuing the PO is probably not the same person you discussed the project with, and that POs are boilerplate documents with little room for detailed descriptions.
I’ve never had a problem with a client revising a PO when I’ve first provided a detailed confirmation letter. Confirmation means that you’re confirming in writing what you and the client have agreed to verbally. So nothing should be a surprise for the client.
If you can’t come to terms with the client, be willing to walk away from the project. Never accept a project or terms that you’re not comfortable with.
What if you’ve accepted a PO but are unable to complete the project?
Life happens. There may come a time when you have a contracted project under way but due to injury, illness, loss, vendor screw-up, or other circumstances that you can’t finish the work, need to delay it, or extend it.
My recommendation is to immediately contact your client and let them know what’s happened. You already should have cancellation terms in your confirmation letter, and the purchase order terms would also include a termination clause. Work with your client to explore options and come to an agreement. If unsure or things become difficult, consult with an attorney.
In conclusion, whether you use a contracts, confirmation letters, purchase orders or all three, these documents make communication easier and manage expectations on both sides of the project. Contracts are a regular and necessary part of doing business, and doing business is how you earn a living from your creative work.