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Purchase Order Terms and Conditions

We have been seeing more purchase orders from customers lately that have ridiculous terms and conditions. A lot take the responsibility of an accident, etc., off of them and on to us vendors — even if we had nothing to do with it. These purchase orders are coming from large corporations. Some of the terms are not actually on the PO. You have to go to the website to download them. How are you handling this? Do you walk away?”
– Michelle Cooper, Sales Department Manager, Lift Truck Sales & Services, Inc., Knoxville, TN

Mark Milovich, President
Lift Atlanta, Inc.
Decatur, GA

Asked & AnsweredThis is a constant and ongoing battle, and these days it seems to be ever more prevalent. Sometimes it is a scary proposition to “hold your own” against large corporations for fear of losing business, and inevitably some customers will take the stand of “it’s our way or no way.” When it comes to the protection of your own dealership, you can never be too careful, and sometimes you have to be downright selfish. It’s OK to give in on some things, maybe an extra week or so on payment terms, but when it comes to liability, and specifically indemnification, you can never be too careful. On such issues, we hold our ground fiercely. Under no circumstances will we agree to an indemnification where my company is asked to forfeit our rights, or hold a customer harmless for their negligence. We will only hold harmless on the direct dealings we have with the end-user that are within our control. There is no order big enough or profit margin large enough to take on the risk you mention. We have lost some orders due to our stance, yet we find more and more these companies just want to see what they can get away with, and a with a little resistance, will negotiate down their terms. One case in particular — a few years ago we received such a contract as you detail from a large, well-known national retailer. Our initial response was “no,” we did not agree to their terms and spelled out the specific paragraphs we would not accept. They came back with an “it’s this or nothing” attitude. We said, thanks but no thanks, and walked. About six months later they asked us to reconsider — my response was our position had not changed. By the end of it, and about a year later, we had them re-write about 90 percent of what we were not comfortable with, and we secured the business. And this was from a company that has a very hard reputation of “our way or no business,” so it can be done.

The other variable not to overlook is your sales staff. Under no circumstances, in our opinion, should sales staff be permitted to negotiate sales terms. If a customer wants something other than what our standard terms are, it must have approval from upper management prior to us accepting the order. There is just too much liability out there and you have to really reign in sales staff from making agreements on terms that are not acceptable.

It’s your company, and it has to be defended as strongly as you would protect your own child. Is an order — any order — worth being dragged into court over? Even if the event in the terms you are being asked to accept has never happened before and has a remote chance of happening ever, there is always a first time! Don’t be afraid to hold your ground and defend your company. And always ask and insist on a reciprocation of the indemnity clause if it is not clearly spelled out.

Scott Lee, President
Conveyor Solutions, Inc.
Schaumburg, IL

I could spend hours talking about this. The simple answer is, YES. As companies continue to look at ways to cut costs, mitigating risk is now high on the pecking list. They feel if they move the liability to a third party, their ultimate cost of doing business will be lower.

However, what they don’t realize is they will still be named in a lawsuit, and have to defend it, etc. The only ones making money (which in turn costs the company money) are the attorneys who write, review, and negotiate over the terms.

We accept risk in some cases (when we know we have complete control of the outcome) and turn down jobs when there are too many variables. We will also never accept a PO when the terms state we may be liable for costs associated with lost production.

If we have to accept a PO with costs associated with exceeding the completion date, we then add an incentive for finishing early. Since they usually don’t want to pay it, they’ll usually remove the penalty wording.

Jerry Weidmann, President
Wisconsin Lift Truck Corp.
Brookfield, WI

The question is quite broad and each circumstance is different. When we receive terms and conditions that are overly one-sided, we do the following:

We review the terms and conditions within the context of risk. Do we believe accepting the terms exposes us to undo risk for the work we are performing at the customer?

1. If the answer is no, we may accept the terms as written.

2. If the answer is yes, we will respond to the customer indicating changes we believe are appropriate.

a. If the customer accepts the changes we proceed.

b. If the customer does not accept the changes — or accepts only some of them we re-evaluate our risk position (sometimes asking the opinion of our insurance company)

i. We may accept the risk.

ii. We may notify the customer that we cannot accept their terms.

I cannot recall a recent situation where we have walked away. I have had discussions with other dealers that have walked away, however. Where the issues were significant we have generally obtained concessions on language that is acceptable to us.

Chuck Frank, President,
AHS, Inc.
Cincinnati, OH

We spend a fair amount of time reviewing and negotiating contract terms. Normally our newer clients along with all larger projects involve corporate procurement teams. We are engaging our outside legal team in most of our larger transactions. We have not had to walk away from any deals but have pushed back the completion date on projects as we work through the legal/contract details. We have accepted that contract terms are more involved and take additional time to negotiate and finalize. With this said, we do our best to include additional time in our project schedule and provide specific information within our proposal to educate and explain the process and potential cost of engaging our legal team. We also ask early in the process how the contract review is handled and forward our terms and conditions asking their legal team to review and provide feedback.

Al Boston, CEO,
AK Material Handling Systems,
Maple Grove, MN

This is an ongoing issue that comes up at our company. Although we have to handle these issues in a professional manner we always resist unreasonable terms and consider that the customer is continuing to negotiate after placing the order. We insist that the customer sign our proposal and make any adjustments to the terms at that time. If we do not approve, then we go back to negotiating. We will not sign an acknowledgment PO unless the terms are the same as we have agreed upon. The only exception to expanding our terms and conditions is if the primary manufacturer that is represented is willing to assume the responsibilities of the expanded terms. This has to be negotiated in advance.

Our experience is that large companies will adjust their boilerplate terms that accounting consultants and attorneys have written for them if it is in their best interest to work with a qualified supplier. If they are not interested in negotiating acceptable terms, do you want the business?

Buddy Smith, CEO
Carolina Material Handling Services, Inc.
Columbia, SC

Great question! We too are seeing more and more customers asking for nonstandard terms and conditions. Most of what we see are extended terms of payments on the PO. Just last week we received a sizable order from a customer. We had been working on this prospect for many months and the salesman was excited about receiving the order. It reached my desk for approval because the terms listed on the PO were longer than our standard payment terms. I determined that it was not a deal killer but I felt we should go back to the customer, explain what our terms were and ask if the PO could be changed. After speaking with the customer, our salesman reported back that the customer agreed to our terms. I feel sometimes we do not think to ask our sales personnel to not only sell the product but to also “sell” the terms. While the above example may not work out every time, if we have this type of dialogue with our customers, we should mitigate the negative impact on our cash flow.

Robert Giberson, Principal,
Midlothian, VA

The Fortune 1000-sized companies are pushing the limits on a variety of contract terms and conditions, so:

• Embrace it. Be thorough and complete in your discovery of client expectations and deliverables. Know that this attention to the details will help separate you from your competitors and differentiate you in your customer’s mind that your company is preferred. Make sure that your bank, your insurer, your equipment vendor all are supporting you (where they can) to help mitigate your risk.

• Negotiate it. Redline anything that makes the business contract untenable for you. Meet with the client and negotiate a better deal. Just because the huge corporations have something in writing doesn’t mean that they won’t budge. Obviously, some expectations (like safety) are intended for everyone’s safety but items like terms of payment, warranty, service response etc. can all favor the customer. I think that their feeling is that only some of their vendors will object, most will accept the new norm and so, at the end of the day, they’ve won.

• Reject it. Sometimes it’s good to “fire your customer” and let them deal with your competitor. Meet with them, explain your viewpoints on what a “WIN-WIN” vendor client relationship looks like — that it’s not where one side or the other side wins twice!

Mike Vaughan, CFO
Liftech Equipment Companies, Inc.
East Syracuse, NY

The customer language has been getting far more aggressive than in the past. I focus primarily on the indemnification language and am somewhat happy that I have experienced a language modification that recognizes that the customer should not ask to be indemnified for an event that they are solely responsible for. They (or their legal/risk management team) do not like to share responsibility because that will complicate the legal process. Nonetheless, Liftech does accept the terms provided if there is this caveat. It does put the burden on the technician to not allow himself/ herself to operate in a compromising environment. I have challenged some customers on language where we are asked to accept “any and all” and in many cases have been successful at getting the language changed. In others where it isn’t, we have to evaluate the potential risk at that site.

I am far more concerned with extending payment terms, even on equipment sales. We have had net 100, net 120 day terms requested; unfortunately these are some of our larger customers.

Daryle Ogburn, President
Advanced Equipment Company,
Charlotte, NC

Over the past few years we are seeing more and more contracts to purchase coming from corporate accounts with many unrealistic terms. Our sales engineers will receive orders they believe are based on the terms in our proposal, but then the “dreaded contract” will show up and I must go through it line by line to see what is acceptable, what we must take exception to and what must be modified to make it acceptable. One thing is for sure, you cannot afford to ignore the contract and hope that none of the terms will be put into force. Some of the contract terms have to do with terms of payment. We know what we need on system sales as a down payment (to make sure we have customer commitment) and we know what we can live with beyond Net 30 Days, our standard payment on invoices. If their proposed terms are unrealistic we will try and be flexible but not to the point it would be damaging to our company. Other terms have to do with liability of all types and as you stated are usually one sided in favor of the customer. Many of the contracts we receive have the customers assuming no liability and with no obligation to pay us any of the purchase price until after they are satisfied with the completed project. This is of course unrealistic, so we must take exception to certain terms and offer some concessions to others. If the customer will not bend on their terms at all and the terms may be damaging to your company, then you must reject the contract.