How To Differentiate A Sales Order vs An Invoice?

Running a business involves multiple operations. Specifically, from ordering or manufacturing a product to sending it out to the customer. In order to run a business smoothly, you need to understand the different types of documents and their purposes. Sales orders and invoices are the documents that businesses use in the day to day operations.

So what are the differences between a sales order and an invoice? Let’s dive into that!

What Is A Sales Order?

A sales order is a document issued when a customer places an order for goods or services to confirm the terms of the transaction. The supplier issues the sales order to its buyer before delivery. A sales order includes the customer’s information, the items ordered as well as their quantity and price.

What Is The Purpose of A Sales Order?

The sales order is dedicated to confirming the supply of goods and services that are requested for purchase by another party. It indicates that the buyer has reviewed the items to be supplied. Furthermore, it lists out the details of the order and involves in the optimization of the order process while saving valuable time and resources. It is important to add that a sales order helps in improving the tracking and data processes of the inventory while also reducing human errors.

What To Include In A Sales Order?

A sales order includes the company details, the shipping information of the receiver, the products purchased by the customer as well as the current balance of the order. It also includes the payment terms and the terms and conditions of the record.

It is significant to note that a sales order includes specified information such as client information, contact name, billing, and shipping address. In addition, it contains the product’s SKU, its quantity, the unit price, and any discount or tax added. Optionally it may include order references, comments, and tags.

Here’s the template of a typical sales order:

What Is An Invoice?

An invoice is a document issued from a seller to a buyer. This commercial document includes important data such as the order quantities, the products, the pricing, and payment terms.

What Is The Purpose of An Invoice?

The invoice is dedicated to offering a record of the sale in order for the business to confirm that will get paid by the clients. In addition, an invoice provides documentation for the tax records as well as for bookkeeping purposes. Also, it is involved in tracking inventory processes as well as providing legal protection.

What To Include In An Invoice?

An invoice includes the seller’s and buyer’s information. It also includes the description of the products ordered, the total amount charged and issue day, and the payment methods. What else should an invoice include? A reference number, the details of the transaction including the goods and services, the prices of each time and the total amount to be paid by the customer. Note that taxes and discounts should be added too.

This is what an invoice could look like as an example:

What’s The Difference: Sales Order VS Invoice

There are multiple differences between a sales order vs an invoice. Let’s analyze that explicitly:

1. Purpose Of Use

First of all, a sales order is an agreement that certifies the sale and shipment of the product to the customer. It is also used by companies to track orders and resupply their stock.

On the other hand, an invoice is a document in which the customer is requested to pay for the goods or services provided by the business. Thus, it is considered to be a receipt of services provided and it’s used to inform the customer that payment is expected.

2. Date Of Documentation

The date of documentation for a sales order is different compared to an invoice. Specifically, the date of documentation of the sales order starts the day that the order starts processing. In other words, the sales order is created as soon as the transaction starts. However, the date of an invoice starts when the products were delivered by the customer thus payment is needed.

3. Accounting Procedures

A sales order depicts a sales quote and its use is dedicated internally. It is important to note that there are two different scenarios with the sales quotes regarding the payment.

• If payment is submitted along with the sales order then the sales order is documented in the bookkeeping of the business.
• If payment is submitted along with the order fulfillment then the sales order isn’t added to the bookkeeping because it doesn’t define a financial agreement.

On the other hand, an invoice depicts a financial transaction that helps a business maintain a precise accounting workflow. Invoices are crucial in accounting procedures because they represent the financial transactions that will provide information regarding outstanding payments, amount of revenue, etc.

4. Type of Product

What does the order include? Goods or services? It is noticeable that usually companies that sell goods tend to use both sales orders and invoices. However, companies that sell services as products prefer using a sales order.

Summing Up

A sales order and invoice are necessary to a company’s workflow. However, each document has a different purpose of use, includes different information, and provides different kinds of advantages to a company. There are multiple dissimilarities between a sales order vs an invoice document but as long as a company has a great understanding of the procurement process it will be easier to choose the ideal document type.