What is the difference between a sales order vs a purchase order? This question arises when one business buys something from another one. To regulate their relationships, they issue various documents to specify the number of purchased items, delivery terms, price, and other instructions.
Purchase orders (POs) and sales orders (SOs) are two phrases that frequently appear in the ordering process when businesses exchange data online. Since the information in each document overlaps, you may easily confuse POs with SOs. Yet, it’s wrong. They are different despite the similarity between them:
- They have contrasting objectives.
- POs and SOs are issued by the buyer or the seller.
- Companies generate them at various stages.
Financial jargon can be difficult to understand. Still, establishing credibility and confidence with partners and suppliers requires a solid grasp of supply chain language. It’s like knowing the current development trends, such as the headless commerce. It may seem hard, but it pays off with increased sales and competitiveness in the market. In this article, we will analyze the basic distinctions between a sales order vs purchase order.
Sales Order vs. Purchase Order: Definition
5.07 billion people utilize the internet worldwide, which is roughly 63.5% of the global population. They change their habits in finding and buying products and communicating with brands.
Consumers turn to online shopping from smartphones and computers because it allows them to get things without physically going to a store. According to statistics, global online retail sales will reach $7 trillion by 2025. Online shopping has become very popular not only among individuals but businesses as well. Just as you receive an order confirmation email with the details, companies should also exchange documents for managing selling processes. That’s where the question of sales order vs. purchase order emerges. Let’s describe these two terms separately.
A Purchase Order: What Is It?
A purchase order is a commercial document issued by a company that wants to buy something. It contains a list of suppliers’ goods, services, or specifications and allows a vendor to deliver the agreed-upon services. It states that the buyer will purchase the products as described in the order.
The document regulates the delivery of complicated orders over a lengthy period. There are two primary ways to make a purchase order: manually or through an automated system. A manual PO creation process works well when you have a few purchases that don’t repeat often or if you want control over each purchase order item.
If your company has many repeat purchases with similar items and quantities, then it might be better to use an automated system. Companies send the document in a digital or paper format and include the following information:
- product information
- the number of items
- vendor details
- the discussed price
- payment and delivery terms
By choosing an electronic form of this contract, you streamline the operations, including payment, order tracking, and reporting. That’s how a purchase order may look:
Although small companies rely on direct communication and large enterprises partner with numerous suppliers, the PO benefits any business. It helps you fix the negotiated terms and specifications. Thus, you can avoid disruptions due to market uncertainty. Suppliers, in turn, also take advantage of POs by ordering the needed amount of raw materials in advance, planning their costs and revenue, and receiving payment in time.
A Sales Order: What Is It?
A sales order is another commercial document for organizing a selling process. A supplier issues an SO to confirm their ability to provide the requested goods and services to the buyer. The vendor may generate an SO in the cases such as:
- They received a PO.
- The buyer paid for the services.
- The company bought goods on credit.
The supplier uses an SO to signal that they have studied and accepted the terms and specifications. These include the costs, quantity, payment options, and the ability to deliver products on schedule to the specified addresses. What should this document contain? The following details are frequently present in sales orders:
- customer’s name and address
- PO/order number
- order details: product price, quantity, code
- the billing address (If it’s not the same as the shipping address)
- payment and shipping terms
Sales orders are essential internal documents helping vendors manage their deliveries. Suppose a large company wants to buy something. It needs the supplier to deliver goods to various addresses, which may mean delivery speed will not be the same. That’s where an SO may help.
It enhances inventory management and order tracking across the organization. To draft the sales order, the seller needs to use information about single transactions from the PO and guarantee correct documentation. Sales orders help maintain inventories that are relevant and valid. They also act as a basis for an accounting department to create shipment invoices and send them to the customer.
Sales orders validate a purchase before providing the goods or services. Such documents bring the most benefit to companies, such as manufacturers, retailers, online B2B wholesalers, and suppliers. Below you can see an example of a sales order.
What Is the Difference Between a Sales Order vs Purchase Order?
POs and SOs vary depending on the market participant’s perspective. While a purchase order is an outgoing document issued by the buyer to purchase products or services, a sales order is an internal document in the supplier’s company. Here are some other points to consider when comparing a sales order vs purchase order:
- Who creates the document
The buying party creates and issues POs, whereas the selling party develops and delivers SOs.
- The significance of the document
The purpose of a PO is to simplify the process of buying certain products and services from the vendor.
An SO aims to create a contract between the seller and buyer to get and provide particular goods and services.
- The document objective
A PO aims to approve the sale of specific products and services. A sales order serves as proof that the supplier has complied with the provisions of the PO.
- When companies draft the document
The buyer sends the PO after discussing and accepting the vendor’s terms, prices, and offers. The supplier gets a purchase order without the SO number, while a sales order contains the PO number. Once the vendor approves the contract, it creates the SO.
Sometimes, the buyer may get an SO to confirm a purchase without sending a PO to the supplier. Some purchasing regulations, such as the “No PO No Pay Policy”, prevent this purchase behavior within an organization.
What a PO and SO Have in Common?
The two commercial documents may look similar due to the information they contain. They participate in the selling process, connecting the two parties involved. Here is what these documents share:
- Both include a list of goods and services.
- When the receiving party of a PO or SO accepts it, the document becomes legally binding.
- They facilitate B2B transactions.
We’ve looked at the sales order vs. purchase order question and compared these two notions. You can use them simultaneously to describe one order because they are essential for successful transactions. But their meanings are not equivalent:
- A purchase order is a document the buyer generates. It outlines items and their cost.
- A sales order is a document created by the seller that shows the number of the ordered items and their price.
But both documents have the same goal. They help ensure clarity over quantities and costs when conducting business transactions.
Kate Parish is the chief marketing officer at Onilab, a full-service eCommerce agency with a focus on Magento. Kate has been working on diverse marketing strategies and activities for more than 8 years. In her pursuit to bring up top-notch marketing solutions, Kate is constantly exploring the topics of SEO, branding, SMM, PPC, and Magento PWA development.