Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy

Purchase Agreement Everything You Need To Know

Key takeaways

  • A purchase agreement is a legal document that outlines the buyer and seller’s terms and conditions.
  • Purchase agreements give confidence in pursuing transactions, set legal standards, and provide clear terms. 
  • The purchase agreement’s ability to impose its binding authority on transactions serves to emphasize its significance.

A purchase agreement serves as the foundation of successful transactions between two parties. It embodies commitment and dedication toward achieving a goal. The legally binding document describes what these parties will involve themselves in. 

This article discusses what this purchase agreement is and its importance. Moreover, we’ll include sections on what builds a strong purchase agreement and the benefits it can give. 

We’ll also add real-world examples to establish its significance and the practical applications of a purchase agreement. 

Building transactional relationships can be done effectively through robust foundations. A resilient transaction can push through with a well-detailed purchase agreement.

I have created a free-to-download, editable procurement contract template. It’s a set that includes a PowerPoint file and a Word file. You can use and tailor them to your needs when entering an agreement. I even created a video explaining how to use the templates. 

What is a Purchase Agreement?

A purchase agreement is a legal document that outlines the buyer and seller’s terms and conditions. It’s proof of all the specific details one needs when buying something. Whether it’s a new motor, a patch of land, or a box of chocolate, the purchase agreement defines these acquisitions.

It’s a crucial record that legally binds two parties, ensuring that the specifics of a purchase are clear and protected. 

Primarily, it’s a transaction roadmap that spells out the essential details of the buyer party, the seller party, the item up for purchase, its cost, and other relevant factors.

It’s the foundation of a solid transaction that provides a foundation for further partnerships. 

This document reduces fraudulent risks, safeguards both parties and ensures confidence in pursuing the deal. Moreover, it includes notifying details, terms, arrangements, and guarantees that contribute to a feel-good, deal-good set-up for the two parties. 

If these stipulations aren’t enough, remedies and resolutions can be placed within the contract terms to enforce them.

Establishing terms, expectations, and responsibilities within the agreement reduces potential issues and possibilities of disputes after the transaction pushes through.

It’s a legal contract that obligates both parties to do their best to provide the contents of their agreement. Stipulations prevent any of the parties from breaching the contract.

Why is a Purchase Agreement Important?

A purchase agreement holds importance in transactions because it outlines all the necessary details in writing. It ensures both parties are on the same page, reducing misunderstandings or disagreements. 

Like a purchase order, this document gives you the peace of mind of knowing all the details are in check. Moreover, it instills confidence in the transaction. 

The agreement is their definite record document that puts all information like price, payment terms, material description, and other relevant stipulations that enforce the transaction. 

For example, Party A agreed to buy a lot for $20,000, but Party B suddenly told you that the lot was for $30,000. 

This sudden price change can bring about arguments regarding the agreed price against the current price. 

With the lack of a legal document such as the purchase agreement, it will be difficult to choose who is right. It’s more than a transactional proof. 

It’s a safeguard or backup that can spell out the exact details of the trade. It supports your arguments if the other party changes things without your consent. 

The purchase agreement plots all the necessary information, establishing a solid framework that resolves conflicts and formalizes the transaction. 

It is a deal safeguard, protecting the interest of both parties. This document ensures all ethical practices and functions are followed accordingly within the deal. 

Purchase Agreement Contents

The purchase agreement is a comprehensive document that contains the nature of a party’s transaction with another. 

Knowing the specific details of how it occurs is crucial to avoid disagreements and discrepancies. 

Below is the information on each section of the purchase agreement:

1. Item Description

The item description section lays out the necessary details of the item in the question of purchasing. 

It doesn’t matter if it’s a new vehicle, a house on the mountain, or a newly-released gadget. 

This section provides the information needed for the transaction to avoid possible confusion. 

It’s a comprehensive section that clarifies the nature of the material, its specifications, and any other relevant details. It establishes an understanding between the buyer and the seller in question. 

2. Payment Terms

The payment terms cover the purchasing details that the parties have agreed upon. 

Whether the transaction is an installment, full payment, or a lump sum, the agreement lays it out in the document. 

At times, parties tend to use negotiation tactics to sweeten their terms. 

It enables them to find favorable installment schedules, agreeable downpayment terms, or applicable financial changes. Adjustments in the payment term may break or make the foundation of the deal. 

3. Sale Conditions

This section delineates the warranties, conditions, safeguards, or guarantees about the item in the transaction. 

It helps the buyer understand the details about the item’s conditions and any liability or disclaimers that may affect continuing the purchase. 

It’s a heads-up for the buyer’s position, whether he wants to continue the deal or find possible alternatives for the transaction. 

The sale conditions are crucial to warrant the buyer’s consent and instill confidence about the upcoming purchase.  

4. Closing Date

In this section, the closing date provides the time for fulfilling the contents of the transaction. 

It specifies when the item ownership goes to the buyer and the provisions of its delivery. 

It wraps up what the buyer needs from the seller to close the purchase. If any, both parties can add provisions that enforce the agreement’s responsibility.

 These incorporations include the delivery method, time adjustment, and delivery area (if applicable).

5. Agreement Execution

This end section shows where both parties must put their signature to finalize the document. 

This process ensures that they both agree to the terms of the purchase agreement. 

It allows them to solidify the transaction’s nature, indicating mutual consent and validity. 

With no other implications, the purchase agreement ensues with the mark of trust between both parties.

Purchase Agreement and Purchase Order

Although these two purchase processes may sound the same, they serve distinct purposes. 

The purchase order deals with ‘what’ the buyer wants. On the other hand, the second purchase agreement deals with ‘how’ the buyer wants the transaction. 

These two documents have their uses, and interchanging them may confuse both parties, impacting the transaction. 

Below are the differences between the purchase agreement and the purchase order:

Purchase Agreement
The purchase agreement focuses on the legal aspects of a transaction. It outlines the terms and conditions between a buyer and seller. It includes the necessary details that warrant the transaction’s fulfillment.
Purchase agreements lean toward flexibility, providing room for term negotiations. This process allows both parties to address their needs and include contingency and security conditions.
It is a legally bind the transaction of two parties. It focuses on fulfilling terms and stipulations at its best effect without compromising the legal safety of both parties.
Purchase Order
The purchase order focused on the indicated goods and services requested by the buyer. It includes necessary details that initiate a transaction, serving as an official request for procurement services.
Purchase orders lean toward specificity. This process focuses on standardized items that offer less negotiation time. Usually, it’s for recurring transactions.
Purchase orders focus more on a tool to facilitate transactions, not to bind them. It offers more room for flexibility in this regard. Both parties can commence the transaction without worrying too much about legal considerations.

Purchase Agreement Benefits

The purchase agreement possesses benefits that instill confidence and assurance to both parties. It’s a document that streamlines and clarifies a potential transaction between two parties. 

Moreover, this legally binding document protects the parties from potential issues if uncertainties arise or there are any breaches. 

Below are three benefits of this agreement:

1. Information Clarity

The purchase agreement spells out the necessary information for both parties. This clarification leaves no space for misunderstanding or potential discrepancies. 

It states what you will receive and the price you need to pay for the transaction. It’s a tool for better communication between parties. 

Additionally, it promotes a better understanding of what each party expects from the other and their obligations. 

2. Legal Backup

If a problem arises, the agreement pops up to remind the necessary safeguard factors that protect a party from liabilities that may happen in the process. 

It provides legal protection for the two parties. This document serves as evidence that they agreed upon terms and stipulations. 

Ultimately, it processes resolution and minimizes issues that the parties may face in the event of a breach. 

3. Peace of Mind

A purchase agreement lays the necessary details without a smokescreen or hidden agenda. This roadmap prevents concerns or worries about uncertainties and ‘what happens next.’ 

It provides ease in the transaction, as the document streamlines the process through a detailed framework. 

This extensive process demonstrates detail and confidence in how the transaction pushes through for both parties. 

Purchase Agreement Examples

Knowing how companies execute a purchase agreement is crucial to further understanding its transactional use. 

It’s a document that ensures safety and instills confidence in parties who want something from each other. 

To that effect, we’ll provide three examples of the purchase agreement in action below:

1. Apple

Apple uses this document with its supplier management to secure crucial product components for its high-end devices. 

When needing parts, Apple contacts its suppliers to ensure a consistent supply. They use the agreement to ensure the quality of the parts while maintaining a smooth operation. 

In the agreement, Apple stipulates its prices, the standards it follows, its strict schedule, and compliance and regulatory standards. 

The company lays out the nitty-gritty information to prevent confusion and disagreement with its suppliers. Consequently, it allows them to meet customer demands and meet them with enough supply of iPads and MacBooks without compromising quality.  

Through purchase agreements, Apple ensures the smooth sailing operations of its company while instilling confidence in its partner suppliers.

2. Walmart

Walmart uses these documents to connect efficiently with its manufacturers and distributors.

 It allows them to establish prices, shipping time, and when they’ll be paying.

 Incorporating it helps them to spread the necessary details and terms to restock as soon as possible. 

With a robust purchase agreement, Walmart efficiently manages its inventory and product availability while giving the best bargain value for its customers. 

This process removes concerns about supply disruptions, delivery schedules, and price spikes. 

For Walmart, striking out the necessary information is crucial for establishing the competitive pricing it offers. 

A solid purchasing agreement helps them maintain their market position while providing the best value, left and right.

3. Boeing

The aerospace company Boeing is about making purchase agreements that streamline its aircraft component procurement. 

The company must source quality materials that pass industry standards and comply with regulations. 

In the company’s purchase agreement, they plot out all the necessary terms that emphasize quality and safety. 

This process happens while ensuring timely delivery and compliance. 

Of course, it also sorts out the best value pricing for these materials. Boeing is about building the best aircraft. It’s more than keeping the customers happy. 

It’s also about maintaining their safety and confidence in flying with those who use the aerospace company’s aircraft.  

The company can keep the planes flying high by its purchase agreements and the deals soaring through.


The purchase agreement is a legally binding document that instills trust, confidence, and assurance in a transaction. 

It’s proof of commitment and dedication towards providing the best value for the material and transactions of both parties. 

We learned how the purchase agreement composes necessary sections that cement its foundation. 

These sections start from the description of the item of interest in the transaction up to the execution of the deal between both parties. 

We also learned the difference between the purchase agreement and the purchase order. 

Additionally, we included the benefits of the agreement, from Information Clarity and legal backup to Peace of Mind. 

We also learn that companies like Apple, Walmart, and Boeing provide clear terms to make purchase agreements successful. 

As we navigate the vast procurement landscape, knowing how transactions can push through is crucial for success. 

Frequentlyasked questions

What is a Purchase Agreement?

A purchase agreement is a legal document that outlines the buyer and seller’s terms and conditions.

Why is a Purchase Agreement Important?

A purchase agreement holds importance in transactions because it outlines all the necessary details in writing.

What are The Contents of a Purchase Agreement?

The contents of the Purchase agreement are the item description, the payment terms, the sales conditions, the closing date, and the agreement execution.

About the author

My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.

Marijn Overvest Procurement Tactics