Sales Order vs. Purchase Order:
10 Differences

What Is the Role of Purchase Orders vs. Sales Orders in Procurement?

Purchase orders and sales orders both play important roles in the procurement process. Here’s a closer look at each:

The Role of Purchase Orders

A purchase order (PO) is a legally binding document that a buyer sends to a supplier to request goods or services. The main role of a purchase order in the procurement process is to:

• Specify the goods or services the buyer requires from the supplier, including the quantity and quality of the items.
• Outline the agreed price for the items and the payment and delivery terms.
• Establish a formal agreement between the buyer and supplier that helps to prevent misunderstandings and disputes.

The purchase order also provides the basis for the supplier’s invoice, which is generated once the goods or services have been delivered or completed.

The Role of Sales Orders

A sales order is a document that a seller sends to a buyer to confirm the sale of goods or services. The main role of a sales order in the procurement process is to:

• Confirm the details of the sale, including the items sold, quantity, price, and delivery terms.
• Establish a formal agreement between the buyer and seller that helps to prevent misunderstandings and disputes.
• Provide a basis for the buyer’s purchase order, which is generated once the sales order has been accepted.
• The sales order also helps the seller to plan and manage their inventory and production, ensuring that they have the necessary resources to fulfill the order.

In summary, purchase and sales orders are critical documents in the procurement process. They establish formal agreements between buyers and sellers and help to prevent misunderstandings and disputes.

By providing a clear and detailed outline of the transaction, these documents also help to optimize supply chain management, streamline order fulfillment, and improve business efficiency.

What is a Purchase Order?

A Purchase Order (PO) is a document signed by a buyer that confirms a seller’s request for goods or services. It outlines the quantity, price, and terms of the agreed-upon transaction.

Purchase orders are commonly used in business to ensure both the buyer and seller are on the same page before any exchange occurs. POs also help buyers keep track of their orders and plan their inventory management more effectively.

How Does Purchase Order Look Like?

A purchase order (PO) is a document that outlines the details of a purchase transaction between a buyer and a supplier. It typically includes the following information:

• Purchase order number: A unique identifier for the PO.
• Date: The date the PO was created.
• Buyer information: The name and address of the buyer.
• Supplier information: The name and address of the supplier.
• Product description: A description of the product being purchased, including quantity and unit price.
• Delivery date: The date the product is expected to be delivered.
• Payment terms: The agreed-upon payment terms, including the total amount due and any discounts or taxes.
• Shipping terms: The agreed-upon shipping terms, such as the carrier, shipping method, and delivery location.
• Signatures: The buyer and supplier’s signatures indicate their agreement to the terms outlined in the PO.

Sample Purchase Order

An example of a purchase order might look something like this:

Purchase Order #12345
Date: April 21, 2023

Buyer: Ace Corporation
123 Main Street
Anytown, USA

Supplier: XYZ Company
456 Oak Street
Othertown, USA

Product: Widget A
Quantity: 100 units
Unit price: $10.00

Delivery date: May 15, 2023

Payment terms: Net 30
Total amount due: $1,000.00

Shipping terms: FedEx Ground, FOB Destination
Delivery location: Ace Corporation, 123 Main Street, Anytown, USA

Buyer Signature: ___________________________
Supplier Signature: ___________________________

What is a Sales Order?

A Sales Order is another document that confirms a request for goods or services, but this time from the seller’s side. It outlines the product or service details, the quantity to be delivered, the price, and the agreed-upon terms of the transaction. Unlike POs, the seller only uses sales orders to confirm orders and track inventory.

A sales order is a document that outlines the details of a sales transaction between a seller and a buyer. It typically includes the following information:

• Sales order number: A unique identifier for the sales order.
• Date: The date the sales order was created.
• Seller information: The name and address of the seller.
• Buyer information: The name and address of the buyer.
• Product description: A description of the product being sold, including quantity and unit price.
• Delivery date: The date the product is expected to be delivered.
• Payment terms: The agreed-upon payment terms, including the total amount due and any discounts or taxes.
• Shipping terms: The agreed-upon shipping terms, such as the carrier, shipping method, and delivery location.
• Signatures: Both buyer and seller sign the sales order, indicating their agreement to the terms.

A sample sales order might look something like this:

Sales Order #98765
Date: April 21, 2023

Seller: XYZ Company
456 Oak Street
Othertown, USA

Buyer: Ace Corporation
123 Main Street
Anytown, USA

Product: Widget A
Quantity: 100 units
Unit price: $15.00

Delivery date: May 15, 2023

Payment terms: Net 30
Total amount due: $1,500.00

Shipping terms: FedEx Ground, FOB Destination
Delivery location: Ace Corporation, 123 Main Street, Anytown, USA

Seller Signature: ___________________________
Buyer Signature: ___________________________

As you can see, the difference is barely noticeable. No wonder so many people need clarification!

What Are the Differences Between Purchase Orders and Sales Orders?

The most important difference between a purchase order and a sales order is the perspective from which each document is written.

A purchase order is a document that a buyer sends to a supplier to request goods or services. It outlines the quantity, price, and delivery details for the items the buyer wishes to purchase. The supplier creates an invoice based on the purchase order.

On the other hand, a sales order is a document that a seller sends to a buyer to confirm the sale of goods or services. It outlines the quantity, price, and delivery details for the items the seller will provide. The buyer creates a purchase order based on the sales order.

In other words, the buyer creates the purchase order while the seller creates the sales order. The purchase order initiates the transaction, while the sales order confirms the transaction.

Another critical difference between the two is that Purchase Orders focus on cost management, while Sales Orders are used to manage revenue.

POs help buyers manage their procurement processes effectively to get the best price available, while Sales Orders help sellers manage their inventory delivery.

Why is it Important to Understand the Difference Between Purchase Orders and Sales Orders?

A clear understanding of Purchase Orders and Sales Orders is critical, especially if you’re involved in a business transaction. Understanding the nuances can help clear up confusion, improve business relationships, and streamline transaction processes.

Using the wrong type of document can lead to costly mistakes, such as incorrect pricing, delayed deliveries, and misunderstandings.

Examples When to Use Purchase Orders vs Sales Orders

Purchase Orders (POs) and Sales Orders (SOs) are two different but interrelated documents commonly used in the business-to-business transactional landscape. Understanding when to use each is crucial for effective business operations.

When to Use Purchase Orders

• Businesses often use POs when ordering goods from suppliers for inventory restocking.
• In sectors like IT or professional services, a PO is issued to secure a particular service from a third-party vendor.
• For significant asset purchases, such as machinery or real estate, a PO is often the first formal step in the procurement process.
• When a company needs specialized goods or services tailored to their needs, a PO provides detailed specifications and terms.
• Organizations use POs to track spending, adhere to budgets, and facilitate financial auditing.
• A PO serves as a legal framework that outlines terms, conditions, and other contractual clauses.

When to Use Sales Orders

• Once a customer agrees to purchase, the business creates a sales order to track the transaction internally.
• In the case of out-of-stock items, a sales order reserves the item for the customer and is fulfilled when the inventory is restocked.
• Sales orders serve as a formal agreement between the business and the customer, confirming product specifications, quantities, and delivery schedules.
• Sales orders are often converted into invoices once the order is fulfilled, making them essential for the accounting department.
• In manufacturing environments, sales orders often trigger production cycles for make-to-order items.
• Accurate sales orders help in planning inventory requirements, optimizing stock levels, and minimizing carrying costs.

To summarize, POs are generally used when a business is the buyer and wants to specify the terms and details of what is being purchased. Sales Orders are used when the business is the seller and wants to track customer purchases internally for fulfillment and invoicing.

The proper use of PO and sales order documents enhances operational efficiency, financial tracking, and legal compliance.

Final Thoughts

Purchase Orders and Sales Orders are essential documents in the business world that work together to ensure smooth business transactions. Knowing the difference between the two is critical in ensuring accuracy and efficiency in managing procurement processes and sales activities.

As a buyer or a seller, understanding the nuances of both documents can help alleviate confusion and ensure that your transactions are carried out smoothly.

FAQ

What is a purchase order?

A purchase order (PO) is a document a buyer sends to a supplier requesting goods or services. It outlines the quantity, price, and delivery details for the items the buyer wishes to purchase. The supplier creates an invoice based on the purchase order.

What is a sales order?

A sales order is a document sent by a seller to a buyer confirming the sale of goods or services. It outlines the quantity, price, and delivery details for the items the seller will provide. The buyer creates a purchase order based on the sales order.

Who creates which order?

The buyer creates the purchase order. The seller creates the sales order.

What information is included in a purchase order?

A purchase order typically includes the purchase order number, date, buyer information, supplier information, product description, delivery date, payment terms, shipping terms, and signatures of both the buyer and supplier.

What information is included in a sales order?

A sales order typically includes the sales order number, date, seller information, buyer information, product description, delivery date, payment terms, shipping terms, and signatures of both the seller and buyer.

What is the purpose of a purchase order?

The purpose of a purchase order is to request goods or services from a supplier in a formal and documented way. It helps ensure that both parties agree on the quantity, price, and delivery details of the purchased items.

What is the purpose of a sales order?

A sales order aims to confirm the sale of goods or services from a seller to a buyer in a formal and documented way. It helps to ensure that both parties agree on the quantity, price, and delivery details of the items being sold.

Can a purchase order be used as an invoice?

No, a purchase order cannot be used as an invoice. A purchase order is a request for goods or services, while an invoice is a bill for goods or services that have already been provided.

Can a sales order be used as an invoice?

No, a sales order cannot be used as an invoice. A sales order is a confirmation of the sale of goods or services, while an invoice is a bill for goods or services that have already been provided.

What happens after a purchase order is sent?

After a purchase order is sent, the supplier will review it and then accept or reject it. If the supplier accepts the order, they will create an invoice and send it to the buyer. The buyer will then pay the supplier based on the payment terms outlined in the purchase order.

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What happens after a sales order is sent?

After a sales order is sent, the buyer will review it and accept or reject it. If the buyer accepts the order, they will create a purchase order and send it to the seller. The seller will then provide the goods or services based on the delivery details outlined in the sales order.

Are purchase orders and sales orders legally binding?

Yes, purchase orders and sales orders are both legally binding documents. They outline the terms and conditions of the transaction and serve as evidence of the agreement between the buyer and seller.

Can changes be made to a purchase order or sales order after it has been sent?

Yes, changes can be made to a purchase order or sales order after it has been sent, but both parties must agree to the changes and sign off on them.