Hi,
I have a SaaS product. It has a payment page already. But a person wants me to “raise a PO”.
I know that PO is a document that buyers send to vendors. So why does my customer want me to raise a PO? What does it mean?
The purchase order is something created by the buyer, not by you. They send it to you, and you put the purchase order number on the invoice you send to them. That allows their purchasing department to connect the invoice to their internal agreement to buy.
It doesn’t make sense that they want you to raise it. Maybe they’re a little confused about terminology and process? They might mean they want a quote.
The process is:
- You create and send them a quote (using Google Docs, for example, which has templates for this)
- If they accept your quote, they send you a purchase order
- You create and send them an invoice
- They (eventually) pay the invoice.
Make sure you tell them that buying via purchase order is only available on your enterprise plan - even if you don’t have one yet. Or at least, insist they pay yearly in advance on your most expensive plan. Having to deal with POs and chasing up payment on the subsequent invoices is a time sink.
Asking you to go through this process is a sign that they should be paying much more than your standard price.
When you tell a prospective customer that they’ll need to be on the enterprise plan if they want POs, etc, usually one of the following happen:
- They understand, and start the (very long) process of purchasing at that price, or
- They find a way to buy at your standard price without a PO.
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Thank you very much for your detailed answer, Steve.
My website is a freemium SaaS. The normal process is that users register for the free plan without payment. Then if they want, they pay for higher plans and after payment, their plan is upgraded.
So if we use purchase order for the payment process, when should I upgrade their account. Right after they send me the purchase order? Or should I still wait their payment?
I’d wait until they paid, at least for the first year. If gives you some leverage to make sure they actually pay your invoice promptly. The person in the org who is using your product will be motivated to chase up payment on your behalf.
They might push back, and ask for it to be enabled already. If so, I’d grant just a month or so’s full access. Again, you need to keep them motivated to pay.
Assuming this is a big or old org, things tend to move really slowly inside of them. In such orgs, six months between them asking for a quote and finally paying the first invoice is normal. Furthermore, they won’t understand why you find that frustrating.
(BTW: Einar Vollset from TinySeed says you should be quoting 20 times your standard price for people who want purchase orders/pay by invoice/any type of custom legals and therefore belong on your “enterprise” plan.)
For my desktop software I generally send out the licence key with the invoice and the invoice is payable within 30 days.
If you have a SAAS it is pretty safe to do this. You can give them 30 days to pay and suspend their service if they haven’t paid their invoice on day 35 (with some warnings first).
But Steve’s approach is also fine. Go with your gut as to which suits the situation/customer.
You might find this article I wrote useful. It covers POs, invoices etc:
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Agree with Andy that it is safe to give them access after you receive the approved PO. The PO means it has been budgeted and approved within the organization. Their finance team will assume it will be paid and it is legally binding in large contracts. Usually you will be paid according to the contract terms if there’s a PO, but some really large companies are notorious for paying significantly later. For Fortune 500 companies, expect it to take 90 days to get paid once invoiced. Make sure you include the correct PO number on the invoice because the clock won’t start until they receive an invoice with the PO number on it.
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