Let’s talk about NetSuite purchase contracts. Many businesses may want to set up purchase contracts with their vendors so they can lock in the best prices on specific items and quantities. Setting up your purchase contracts in NetSuite allows you to streamline the buying process for these items and eliminate errors on purchase orders.
Overview of NetSuite Purchase Contracts
How do purchase contracts work in NetSuite? In a previous blog, we looked at the NetSuite Request for Quote feature. Once you hear back from vendors on the contract terms they can offer you and once you select the best offer, it converts to a purchase contract. A purchase contract contains two key pieces of information: (1) the purchasing terms and (2) the timeline of the contract.
The purchasing terms include things like the exact items the contract applies to, the specific quantities of those items, and the pricing your vendor can offer when you purchase those items at those quantities. The timeline of the contract is controlled by the Effectivity Date field. This field specifies how long the contract terms will remain valid. As long as you are still within the effectivity date, purchase orders that meet the criteria of the purchase contract will be eligible for the prices and discounts that were negotiated in the contract.
Setting Up NetSuite Purchase Contracts
Setting up NetSuite purchase contracts includes enabling the correct features and then creating the purchase contracts.
Enable Purchase Contracts Features
To set up purchase contracts, you will need to start by enabling the purchase contract feature, which you can do on the Basic Features section of the Transactions tab in Enable Features. The Purchase Orders feature will also need to be enabled, if it is not already.
Create a Purchase Contract
There are two main ways to create a purchase contract: (1) from an RFQ (Request for Quote) record and (2) from scratch. After vender bidding has closed on an RFQ record, you can go through the different vendor offers and award specific line items to specific vendors based on their offers. When you save the RFQ, an auto-populated purchase contract will be created for each vendor that was awarded line items on the RFQ. To create a new purchase contract from scratch, on the other hand, you would navigate to Transactions > Purchases > Enter Purchase Contracts.
Purchase Contract – Header Level
On the header level of the Purchase Contract record, you will need to select the appropriate vendor and the start and end dates for the contract. Even with a clear end date, however, it can still be challenging to know when the terms of a purchase contract would be applicable to a purchase order. Suppose you order something that isn’t delivered until after the end date. Do the contract terms still apply? To remove any ambiguity in what orders will apply to a purchase contract, you will also need to enter the Effectivity Based On criteria. This is a dropdown field with two options: Order Date and Expected Receipt Date.
Then, you will need to enter a Minimum Amount. If an order does not reach this amount, the vendor may not honor the contract terms. The Maximum Amount field allows you to place a pre-approval amount limit on your buyers. For example, if you set the maximum amount to $10,000, then NetSuite would require approval for any POs connected to this contract that exceed $10,000. And of course, you can associate this purchase contract with a specific subsidiary, department, class, or location using the Classifications field group.
Purchase Contract – Line Items
To add items to a purchase contract, you will use the Items subtab.
Using the Item dropdown column, select an item. The Vendor Name, Units, and Description fields will auto-populate when you select an item. You will need to enter a value in the Base Rate field. The base rate of an item is that item’s original cost, without any of the vendor’s tiered discounts applied. Then, use the icon in the Additional Pricing field to add the pricing tiers.
For more information on pricing tiers and on setting the terms of the contract, check out our previous blog on the Request for Quote feature.
Using NetSuite Purchase Contracts
How would you use NetSuite purchase contracts? The main way you will encounter purchase contracts in your day-to-day operations is on purchase orders. When you create a new purchase order, you’ll see a field to select a purchase contract to associate with this order.
You will need to select a vendor connected to an active purchase contract, however, in order to make a selection in the purchase contract dropdown field. Purchase contracts will include a history of any linked purchase orders, which gives you visibility in how this purchase contract has been used.
Another benefit of using purchase contracts in NetSuite is that your buyers will receive key alerts. For example, if an expiration date is coming up on a contract, buyers will be alerted of the need to renew the contract. Or if a certain minimum has not been reached on a purchase contract and the expiration date is coming up, buyers would be alerted to that as well.
Conclusion
Using the Purchase Contracts feature in NetSuite allows you to manage and track your cost-reducing vendor deals with ease. If you enjoyed this blog, be sure to subscribe to our mailing list below to receive each week’s latest NetSuite blog post directly in your inbox.