Good relationships between customers and suppliers depend on prompt payment. Customers are responsible for remitting funds in exchange for goods and services, and doing so according to a time frame that is clear to both parties. The abbreviation ARO stands for "after receipt of order" and further helps to clarify payment terms by specifically stating when the payment timeline begins.
TL;DR (Too Long; Didn't Read)
ARO stands for "after receipt of order." It means the timeline for payment starts from the time you place the order, not the time the goods are shipped or received.
Why Payment Terms Matter
The terms that vendors expect from their customers may vary widely and can even be used as a marketing tool: a supplier with leisurely payment expectations is a more appealing choice to a customer with cash flow struggles than a business that requires immediate payment. Whatever the payment terms that a vendor offers and enforces, they should be clearly stated on each invoice to avoid confusion and to allow the vendor to refer back to this document if payment doesn't arrive as agreed.
Shipping Date Versus Receipt of Order
Many businesses create invoices when they ship goods, starting the clock for payment terms on the date the order was shipped. If you order office supplies on Tuesday and your vendor invoices you and ships these supplies on Wednesday, you may not receive them until Friday. If the invoice specifies "Net 15" or "Net 30," you have 15 or 30 days from the Wednesday shipping date to make your payment. However, if the invoice uses ARO terms, the time allowed for you to pay in good standing will start on the Tuesday you placed your order rather than the Wednesday the goods were shipped or the Friday you received it.
ARO Versus ARP
If a vendor hasn't done business with a particular customer before, there won't be a track record or established relationship to provide some certainty of payment. In this circumstance, it makes sense for the vendor to use an ARP, or "after receipt of payment" arrangement. The order won't be shipped until the customer pays for it, providing the vendor with a guarantee of fair compensation. Many online ordering arrangements use ARP terms with digital credit card processing, eliminating the need for wait time between ordering and payment.
Payment Upon Receipt
Payment upon receipt is a more casual arrangement for the customer than ARO but it requires quicker payment than a Net 15 or Net 30 arrangement. A customer who pays on receipt is spared the inconvenience of making payment before the goods even arrive. However, this arrangement doesn't allow the customer any additional wait time before payment is due.