Ecuador: What You Need To Know About Purchase Orders

Last Updated: 9 August 2019
Article by María I. Torres

The purchase process, especially in large companies, has become a complex process in which it is necessary to give specific answers that are legally supported in the shortest possible amount of time. It is usual to require a contract for each transaction, but this delays the purchase processes. Purchase orders used effectively can contribute to run a more dynamic business and to save time and money.

But, what is a purchase order?

A purchase order is a document that a buyer sends to a seller in which the scope and details of the services or products required and accepted by the parties are specified. Generally, pre-established forms or documents are used to better specify data and references. They usually have the title “Purchase Order” printed.

The legal value of a purchase order

When a buyer generates a purchase order by formally accepting an offer or proposal from the seller, a binding contract is generated for both parties.

For this reason, it is important to know that the purchase order protects both the buyer and the seller, against any eventuality or controversy, depending on the terms and conditions established in the offer and the purchase order.

Electronic purchase orders

Many companies are now using electronic purchase orders, where the whole process is carried out through a platform. This platform is a centralized system in which the purchase documents are registered. This system is convenient because it saves time and paperwork.

For this type of transactions, it is recommended to have an Electronic Transaction Agreement1.

What must a purchase order contain to be valid?

The more specific and detailed the purchase order, the more secure the transaction will be. It is recommended that at least it contains the following:

  • Identification of the parties (buyer and seller);
  • Detail of products and / or services;
  • Quantity;

Electronic Transaction Agreement: its purpose is to establish the principles and rules applicable to those cases in which the contractual parties offer or accept products and / or services electronically. The recently published Commercial Code regulates electronic transactions, indicating that they are fully valid and effective (Arts. 238 to 247). Regarding contracts, Art. 76 defines the Electronic Services Commercial Contract as: "(...) the agreement of wills between a provider and a user for the authorization of an electronic system or platform that allows the performance of any activity, commercial, financial, or service transaction to be provided by the same provider or a third party ".

  • Price;
  • Payment form;
  • Delivery details (when and where).

How do purchase orders facilitate business?

  • They generate fewer complications in the negotiation of a contract.
  • Legal representatives save time since the purchasing department has been designated to issue such documents.
  • They are an excellent mechanism to maintain proper monitoring of transactions.
  • They allow having a better control of the budget.
  • With electronic purchase orders you save time, paperwork and signatures, in addition to having an electronic record of all transactions.
  • Provides both vendors and buyers with a supporting contractual document with full legal effect.

Should a contract be signed after a purchase order has been issued?

It is not necessary or convenient. The purchase order is a full value contract; signing a contract duplicates documents unnecessarily.

Should the purchase order contain contractual terms and conditions?

The purchase order may or may not contain contractual terms and conditions. However, when the offer presented by the seller is solely economic and no previous contractual terms and conditions have been agreed, it is convenient to include at least basic terms and conditions in the purchase order.

However, if there is a proposal by the seller that contains contractual terms and conditions, it would be advisable to negotiate the conditions in that document and not include others in the purchase order, thus avoiding having two documents with different terms and conditions.

When you are going to start a business relationship with a new supplier, it is recommended to agree on the terms and conditions that apply to all transactions from the beginning, so it is not necessary to establish new terms and conditions in each transaction.

What problems could the purchase orders generate?

Incomplete or defective purchase orders can generate conflicts as exemplified in the following cases:

  • The content of the purchase order contradicts the terms and conditions of the offer or proposal.
  • The document is not specific enough in the basic content and there is no clarity in the scope of purchase.
  • The terms and conditions of the purchase order differ from those of the offer without determining the ones that prevail.
  • A purchase order is used as an award letter and the signing of a contract is subsequently required.

What are the differences between a purchase order and an invoice?

They are totally different documents. However, both contain similar characteristics and information since they contain the details of the commercial transaction carried out.

  • The purchase order is issued by a buyer and contains the details of your request.
  • The invoice2 is issued by the seller and indicates all the details of the merchandise or service and its payment.

Footnotes

[1] Electronic Transaction Agreement: its purpose is to establish the principles and rules applicable to those cases in which the contractual parties offer or accept products and / or services electronically. The recently published Commercial Code regulates electronic transactions, indicating that they are fully valid and effective (Arts. 238 to 247). Regarding contracts, Art. 76 defines the Electronic Services Commercial Contract as: "(...) the agreement of wills between a provider and a user for the authorization of an electronic system or platform that allows the performance of any activity, commercial, financial, or service transaction to be provided by the same provider or a third party ".

[2] Invoice: proof of sale that proves the transfer of goods or services. In addition, the invoice serves in the tax law to establish the tax base of certain taxes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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