The main difference between a sales order and a purchase order is right in the name: you use purchase orders to buy goods, and the seller agrees to fulfill the purchase by confirming the details in the sales order.
This article looks at sales orders versus purchase orders in detail, breaking down the key differences between these important documents—so you can speak the same language with your suppliers and clients.
What is a purchase order?
A Purchase Order (PO) is a commercial document that your company will issue when purchasing goods such as goods, raw materials, or stock. It is the legal proof of the transaction between the buyer and the seller, which describes the details of the purchase. This information includes the type and quantity of goods or services, agreed prices, expected delivery, and payment terms.
A clear, legally binding agreement between both parties not only helps you track and approve purchases but also provides a framework for managing the entire transaction. It reduces the chances of disagreements or disputes, while generally simplifying the buying process.
Your purchase orders allow you to manage orders, track spending, and keep accurate records of inventory and stock control.
What is a sales order?
To turn the tables, if you are a seller you usually respond to a purchase order by issuing a Sales Order (SO). This is a confirmation document that agrees with the job and accepts the information. Confirms items, prices, prices, discounts, and delivery terms. It is a mirror image of the purchase order, officially acknowledging that you have received the PO and are happy with the details.
As a seller, you will then deliver the goods or provide the requested services, in this case issuing an invoice. While a sales order confirms a purchase request, an invoice is your formal request for payment once the job is complete.
Sales orders can be created in a variety of formats, including digital, “ready-to-order” (for customized products), and “engineered-to-order” (for installations or specialized services).
Sell order vs. buy order: Big difference
Obvious difference in time and direction of travel: PO is issued to the merchant first, and SO is issued to the consumer to answer.
But why not have a box on the PO where the seller can sign his commitment to proceed? That suggests subtle but important reasons why the two documents exist separately:
1. Internal records
If you’re a buyer, you can use POs to track spending against your budget, compare quotes from different vendors, or manage internal approvals.
And when you sell, your sales order triggers internal fulfillment processes. It can guide you in allocating stock, planning production, or allocating resources for service delivery.
The use of separate documents allows both the buyer and the seller to manage their operations more efficiently. Each document provides a clear and reliable record of transactions, which can be important for legal and accounting purposes.
2. Customization and customization
In some cases, the seller may request minor changes to the buyer’s original PO, such as adjusting delivery dates or offering other products. A sales order allows you to document these changes clearly and get confirmation from the buyer.
3. Integration with other systems
Many businesses with integrated stock management, accounting, and CRM tools use SOs and POs as the starting points throughout the full order lifecycle. In fact, these two documents can act as messengers between these systems, generating updates and actions in various departments and processes. This streamlines data flow and improves overall efficiency.
4. Legal status
In many cases, the sales order represents the point at which the formal acceptance of the transaction is a legal obligation, especially if we indicate a purchase order. However, the original purchase order may specify that only its terms apply, in which case the purchase order may be legally binding. Sometimes, the purchase order will also specify acceptable deviations from the original agreement.
The point at which a contract becomes a binding obligation can also vary depending on the industry in which you operate. And similarly, it can depend on the laws governing sales contracts in the place where the work is done.
Streamline SO and PO processes with appropriate software
Buying and selling are essential functions of any business and soon you will need to issue both buy orders and sell orders. Therefore, it is important to note the nuances of each document, including timing, purpose, and key information.
It is also important that you manage these documents properly to keep your financial records accurate and your cash flow healthy.
Final thoughts
Using accurate accounting and purchase order software can help you streamline your PO and SO management, while optimizing workflow, reducing errors, and maintaining healthy relationships with your suppliers and customers.