Do Purchase Orders Expire and Why Setting Expiration Dates Matters
Purchase orders, or POs, do not inherently come with expiration dates. However, it is a wise practice to establish these dates. This not only holds suppliers accountable for timely deliveries but also helps businesses avoid unnecessary stock and financial risks. In this article, we will explore the importance of setting expiration or cancel by dates on purchase orders and the scenarios under which it is beneficial.
The Importance of Setting Expiration Dates on Purchase Orders
By setting expiration dates, businesses can ensure that they are not left with unsold or obsolete inventory. This is particularly important when dealing with seasonal or event-specific items. Let's explore the key reasons why setting these dates is crucial.
Protecting Against Late Deliveries
Suppliers may sometimes face unexpected delays in delivery. If a purchase order does not have an expiration date, you could end up with items that your customers no longer need due to late deliveries. For instance, if you have a purchase order for items needed by a customer for an event, and the delivery is after the event date, the item might no longer be of use. Setting an expiration date ensures that you can cancel the order if the supplier fails to fulfill it on time, protecting your business interests.
Optimizing Seasonal Inventory Management
Seasonal items, such as Christmas decorations, require careful planning and management. You might order these items well in advance, but their demand and relevance diminish significantly after the season ends. For example, if you order Christmas-specific items in July, you need to be mindful of the end of the selling period. Setting a cancel by date ensures that you have enough time to sell through your existing inventory before the items become unsellable.
The Role of the Purchasing Manager
A purchasing manager would naturally expect a PO to be filled in a reasonable amount of time. However, it is also important for businesses to be prepared for potential delays. Over time, prices, and product specifications can change. Therefore, a document dating several years back may not reflect the current market conditions. Having clear expiration dates on POs helps maintain accuracy and ensures that the purchasing process is timely and cost-effective.
The Benefits of Supplier Accountability
Setting expiration dates on purchase orders not only protects your business from potential risks but also serves as a form of accountability for the supplier. Ensuring timely delivery is crucial for maintaining good relationships and trust between buyers and suppliers. When suppliers know that there is a specific deadline, they are more likely to prioritize your order and deliver on time.
Avoiding Unnecessary Stock and Financial Risks
Having a clear expiration date on a purchase order helps prevent the buildup of excess inventory. Excess stock can lead to increased storage costs, obsolescence, and potential write-offs. By following the expiration date, you can make more informed decisions about what to order and when to order it, reducing the risk of overstocking.
Optimizing Business Supply Chain
Establishing expiration dates also helps improve the overall efficiency of your business supply chain. It allows you to plan better, manage cash flow more effectively, and ensure that your inventory levels are at optimal levels. This, in turn, helps in maintaining a smooth flow of goods and services, ultimately benefiting both the purchasing department and the entire organization.
Conclusion
In conclusion, while purchase orders may not naturally come with expiration dates, it is highly recommended to set them. This practice not only protects your business from potential risks but also ensures timely delivery and supplier accountability. By implementing expiration dates, you can optimize your inventory management, avoid unnecessary costs, and maintain a lean and efficient supply chain.