Last Updated: April 4, 2023by Jeel Patel Online shopping and e-commerce have become important components of how people purchase goods. According to reports, global e-commerce revenues are predicted to reach $5.5 trillion in 2022. Whether you need daily necessities or a pair of shoes, you are likely to start your shopping with an online seller. When you place these shopping orders, you receive an email acknowledging that the seller has received your purchase order request, along with payment and shipping details. When it comes to purchasing things for commercial operations, the approach is fairly similar. When a business needs to buy something from a supplier, it creates a purchase order. This supplier generates a sales order, which serves as a receipt for these items. Business organizations must grasp the difference between a sales order vs purchase order. This expertise can assist you in streamlining your purchase process and keeping your company’s business processes organized. Let’s get to the details! Table of Content What is a Purchase Order? What is a Sales Order? Differences Between Purchase Orders and Sales Orders: Purchase Order VS Sales Order Comparison chart Key differences in detail How Do Sales and Purchase Orders Function Together? FAQ Conclusion What Is a Purchase Order? A purchase order (PO) is a contract that requires the buyer to acknowledge the delivery of goods as specified in the order, provided all agreed requirements are met. The buyer must next fulfill the payment terms specified in the purchase order. Have a look at its sample to get a better idea: Purchase orders can be created in a digital format or can be paper-based; digital purchase orders make the whole process more streamlined by facilitating purchase order tracking, payment processing, and reporting. Small businesses rely on direct purchasing transactions, whereas large businesses establish agreements with suppliers. Large businesses are in a stronger position to secure financial terms and other criteria in purchase orders, avoiding the need for frequent bargaining. This also helps to protect the company from unexpected fluctuations in market conditions. The issuance of a purchase order is one of the final steps in the purchasing process. This becomes legally binding on both sides when the supplier agrees and approves the order. It covers all transaction details from a single vendor, such as: Order number Vendor details Number or amount of items Product name and code Purchase goods description Price Payment terms Discounts (if any) Total amount Shipping and delivery information All purchase orders are recorded, which can be useful for budgeting, especially if you place recurring orders with the same supplier. It benefits the supplier because they know what to expect in the long run. It enables them to take advantage of market conditions by purchasing raw materials at low prices and scheduling staff to maximize efficiency rather than making one-time orders with a short turnaround. The supplier also knows how and when he will be paid, as described in the invoice, which uses the PO as a reference. Try Creating a Purchase Order Now Experience how easy it is to create, send, and manage purchase orders with InvoiceOwl. Start Your FREE Trial What is a Sales Order? In both B2B and B2C businesses, a sales order (SO) is a legally binding contract issued by a vendor or seller to a buyer. It is usually issued after the customer pays, although it can also be granted once credit purchases are made. Here is a sample sales order: A sales order is often issued in response to the receipt of a PO, and it can be generated in several ways. Sales orders often include the following information: Name and address of the customer Order number for sales The billing address (if different from the shipping address) Name of the service or product Price Product quantity Product code where applicable Payment terms Sale terms, including any relevant discounts Expected delivery date A sales order is a legally binding contract that is essential in any supply chain management. When a customer submits a purchase order, it is the vendor’s job to fulfill it. When dealing with a large company, this can become a complicated purchasing process. Sales orders, on the other hand, aid in obtaining significant information from POs for specific orders to ensure that orders are fulfilled correctly. A sales order also ensures that the seller’s inventory is updated and on time. Following the fulfillment of the sales order, the Accounts Department generates an invoice based on the information in the sales order and sends it to the buyer. Now that you understand both purchase orders and sales orders, let’s explore them even further by knowing their differences. Differences Between Purchase Orders and Sales Orders: Purchase Order VS Sales Order Both purchase orders and sales orders are commercial documents, but they certainly have their differences. Let’s get to them! 1. Comparison chart Comparative specifications Purchase order Sales order Meaning A purchase order is a commercial document that authorizes a supplier or vendor to deliver the specified goods at the negotiated terms and conditions. A sales order is a commercial document that is issued to the customer by the seller before the delivery of the mentioned goods or services. Type of document A PO is an external document. An SO is an internal document that is generated by the supplier’s company itself. Importance of the document The intention of a PO is to facilitate the purchase of specific goods and services from the vendor. The intention of an SO is to establish an agreement to sell specific goods and services to the purchaser. Who prepares the said document? Purchase orders are created by the buyers or customers and are sent to the suppliers. Sales orders are issued by the suppliers to their buyers before the delivery of specific products. Effect of acceptance A PO creates a legal contract between the purchaser and the vendor. An SO approves the sale of mentioned goods in the PO. When is it generated? A PO is generated after the acceptance of the vendor’s quotation, offer, or proposal. An SO is generated after receiving the purchase order. Objective of the document The purpose of PO is to authorize the sale of certain goods and services. The purpose of SO is to confirm the sale of certain goods and services. 2. Key differences in detail The following points will explain the contrasts between purchase orders and sales orders in detail: A purchase order is issued by the purchaser to the vendor and includes information about the type, price, quality, quantity, and other specifics of the products. A sales order whereas is issued by the vendor to the buyer and authorizes the sale transaction once the customer accepts the vendor’s price quotations. When the seller accepts the purchase order, a legal contract is formed between the purchaser and the vendor. When the buyer accepts the sales order, it signifies that the purchaser has accepted the terms of the agreement. A PO is an external document that can be used to request the seller to deliver items of a certain quantity and quality. A sales order is essentially an internal document that can be issued to a customer upon request or used internally to communicate information to employees. A purchase order signifies the customer’s intentions to buy certain products and services from the seller. Whereas, a sales order implies an agreement to sell certain products and services to the customer. 3. Key similarities in detail Sales orders and purchase orders have a few things in common as well: Both are legal documents that bind the receiving party when they accept them. Both are usually used in B2B scenarios where the purchase price is high. Manufacturing and wholesaling are 2 such examples. Both state the goods and/or services that will be delivered to the purchaser. Now that we are clear on the differences and similarities between purchase orders and sales orders, let’s understand how they work together. How Do Sales and Purchase Orders Function Together? There is a step-by-step flow when it comes to making a big purchase. So let’s grow through that flow and see the purchase and sales order in action: When large companies have to purchase goods, they create a comprehensive purchase order that outlines single or multiple purchases from a vendor. This purchase order is sent to the seller digitally, through email, or by fax. When a purchase order is received, the supplier enters it into their records using a purchase order software solution. The automation in the software verifies the purchase order details. The inventory is checked, and a sales order is issued for the goods that are in stock and ready to be shipped. The vendor sends the buyer a sales order, which confirms approval of the order. This document includes specifications and terms of payment for products that are ready for dispatch; stocked-out items are listed as backorders, along with an expected delivery date. The buyer’s software application automatically analyzes the terms of the sales order and the purchase order, flagging any discrepancies. These could be caused by delayed delivery dates, price changes, quantity differences, etc. Items scheduled for later delivery or multiple delivery locations will be managed through separate sales orders associated with the initial purchase order. The software app assists in tracking the most complex orders, notifying the user of payment deadlines, comparing packing slips and purchase orders with sales orders, etc. The goods are delivered to the buyer together with a delivery slip that details the items on the sales order. The buyer’s system records the packing slip, and a receipt is provided to the supplier, acknowledging delivery of the products. The customer gets an invoice from the vendor, which is tallied with the delivery slip and purchase order. When the purchaser settles the invoice, the transaction is complete. Every transaction record in the procurement management system is integrated and easily accessible. A service provider who meticulously fills all sales orders sent and purchase orders received, as well as tracks such business transactions will be able to efficiently estimate their earnings. The systematic preparation and filing of all such commercial documents will allow you to effectively and efficiently manage your everyday operations and business as a whole. Want to Speed Up Creating Purchase Orders? InvoiceOwl lets you create and send a purchase order within just a few minutes. Start Your FREE Trial Frequently Asked Questions What are the similarities between purchase orders and sales orders?Sales orders and purchase orders both list the products and services involved in the business transactions to which they refer. When the recipient accepts the paper and its negotiated terms, both sales and purchase orders become legally binding contracts. Both are widely used in all industries, but particularly in B2B transactions in wholesale, retail, and manufacturing. What is Purchase Order Form (POF)?A purchase Order Form (POF) is a document used by the purchasing department to order mentioned goods or services from the supplier. It is established by the requirements specified in the purchase requisition form, which carries the procurement manager’s signature. The Purchase Order Form comprises the following information: Date of purchase requisition (order) Name and address of the purchasing company Name and address of the vendor Terms of payment Price Delivery date Delivery instructions What is the primary purpose of a purchase order?A purchase order acts as proof of the legally binding document between the buyer and supplier. It gives the supplier permission to deliver the requested material. It also permits the goods receiving department to receive delivery of the ordered products or services. It also enables the accounts payable department to acknowledge the invoice from the supplier for delivery payment. What is the difference between a purchase order and an invoice?The primary difference between a purchase requisition and an invoice is that a purchase order is issued by a buyer to a seller in order to establish a smooth procurement process and manage and track it efficiently.An invoice, on the other side, is when the seller sends the purchaser a formal request for payment once the order has been fulfilled. What is an invoice?An invoice is a legal agreement that requests payment in exchange for goods or services.A vendor’s invoice includes the payment schedule and date, the total amount due, the name and price of the goods or service, discounts (if any), and the seller’s contact information. Conclusion We hope that this blog helped you understand the key differences between purchase orders and sales orders and how they function together. As we have mentioned earlier, businesses can create purchase orders either digitally or with manual processes. If you choose to create POs with manual processes, you should know that it has several drawbacks that can affect your business when you have to create multiple POs at a time. Creating POs manually is a time-consuming process and can also result in human errors. However, you can prevent these issues if you choose to create POs digitally. It’ll save you time and help you run your business efficiently. Here comes InvoiceOwl – one of industry’s best purchase order software. InvoiceOwl can help you create orders for multiple purchases effortlessly with automation. It can help you track the status and also enable you to create them anytime and anywhere with ease. So what are you waiting for? Go for our FREE trial today and experience how our incredible features can help optimize your business processes. Author Bio Jeel Patel Founder Jeel Patel is the founder of InvoiceOwl, a top-rated estimating and invoicing software that simplifies the invoicing and estimating processes for contractor businesses. Jeel holds a degree in Business Administration and Management from the University of Toronto, which has provided him with a strong foundation in business principles and practices. With understanding of the challenges faced by contractors, he conducted extensive research and developed a tool to streamline the invoicing and estimating processes for contractors. Read More Sign Up Now! Get weekly updates from InvoiceOwl. Subscribe Now Share this post: Twitter Facebook Pinterest Linkedin Email
