Important Differences Between Purchase Order and Sales Order

Recently updated on August 20th, 2023 at 11:47 am

Purchase Order

A purchase order (PO) and a sales order (SO) are two different types of business documents that serve distinct purposes. The key differences between the two are:

  1. Purpose: A purchase order is used by a buyer to request goods or services from a supplier, while a sales order is used by a seller to confirm a customer’s request for goods or services.
  2. Issuer: A purchase order is typically issued by the buyer, while a sales order is typically issued by the seller.
  3. Content: A purchase order typically includes details about the goods or services being requested, such as the item name, quantity, unit price, and delivery date, as well as terms and conditions of the purchase. A sales order typically includes similar information, but also includes additional details about the customer, such as shipping and billing addresses, and any discounts or special instructions.
  4. Legal Implications: Purchase order serves as a legally binding agreement between the buyer and supplier, and once it is signed by the supplier, it becomes a contract. A sales order, on the other hand, serves as a confirmation of the customer’s request and is not legally binding.
  5. Payment Terms: Purchase order includes the payment terms agreed upon by buyer and supplier, while sales order doesn’t include payment terms.
  6. Invoicing: Purchase order serves as a basis for creating an invoice for goods or services received by the buyer. In contrast, sales order serves as a basis for creating an invoice for goods or services delivered to the customer.

Both purchase order and sales order are important documents that play a critical role in the buying and selling process. They help to ensure that the correct goods or services are delivered to the correct party, at the correct time, and at the correct price.

Process of purchase order (PO)

The process of a purchase order (PO) typically involves the following steps:

  1. Identifying a need: The buyer identifies a need for a specific product or service and begins the process of sourcing potential suppliers.
  2. Sourcing suppliers: The buyer researches and evaluates potential suppliers to determine which one best meets their needs.
  3. Requesting a quote: The buyer sends a request for quote (RFQ) to the selected supplier, outlining the specific products or services they are interested in purchasing and any relevant details.
  4. Reviewing the quote: The supplier reviews the RFQ and sends a quote to the buyer, outlining the cost and terms of the proposed purchase.
  5. Negotiating the terms: The buyer and supplier negotiate the terms of the purchase, including the price, delivery date, and payment terms.
  6. Issuing the PO: Once the terms of the purchase are agreed upon, the buyer issues a purchase order to the supplier, outlining the details of the agreed-upon products or services.
  7. Confirming the PO: The supplier reviews the PO and confirms that they can fulfill the order as outlined.
  8. Shipping and delivery: The supplier ships the products or provides the services as outlined in the PO, and the buyer receives and inspects the goods or services.
  9. Invoicing and payment: The supplier sends an invoice to the buyer for the agreed-upon amount, and the buyer pays the invoice according to the terms outlined in the PO.
  10. Closing the PO: Once the goods or services have been received and payment has been made, the PO is considered closed.

This process can vary depending on the company’s internal procedures, size and the industry they are in. Some companies might have an automated system, some might use electronic PO systems, and some might use Purchase Requisition (PR) instead of RFQ. The process also might vary depending on the size of the order, the complexity of the product/service, and the relationship between the buyer and supplier.

Types of purchase order (PO)

There are several types of purchase orders (POs), each with their own specific purpose and characteristics. Some common types include:

  1. Standard Purchase Order: This is the most common type of PO, and is used for the routine purchase of goods or services. It typically includes the basic details of the purchase, such as the item, quantity, unit price, and delivery date.
  2. Blanket Purchase Order: This type of PO is used for repetitive purchases of the same items over a period of time, often with a set delivery schedule and pricing.
  3. Contract Purchase Order: This type of PO is used for large or complex purchases that require a formal contract between the buyer and supplier. It typically includes more detailed terms and conditions than a standard PO.
  4. Debit Memo Purchase Order: This type of PO is used when there is a discrepancy between the invoice and the PO, for example when the supplier has charged the wrong price or sent the wrong item.
  5. Change Order Purchase Order: This type of PO is used to make changes to an existing PO, such as to adjust the quantity or price of an item, or to add or remove items from the order.
  6. Drop Ship Purchase Order: This type of PO is used when the supplier ships the goods directly to the customer, rather than to the buyer’s warehouse or facility.
  7. Direct Purchase Order: This type of PO is used when the buyer purchases goods or services directly from the supplier without going through a formal bidding process.
  8. Service Purchase Order: This type of PO is used to purchase services, such as consulting, maintenance, or repair services.

These are some of the common types of purchase orders, and there might be other types depending on the industry and the company’s internal procedures. The type of PO used will depend on the specific needs and requirements of the purchase.

Sales Order

A sales order is a document that is used by a seller to confirm a customer’s request for goods or services. It is typically issued after the customer has placed an order, and serves as a formal record of the sale. A sales order typically includes the following information:

  1. Customer details: The customer’s name, address, and contact information.
  2. Order details: The items or services being sold, including the product name, quantity, unit price, and any special instructions.
  3. Shipping details: The shipping address and any special delivery instructions.
  4. Billing details: The billing address and any discounts or special pricing agreements.
  5. Order date: The date the order was placed.
  6. Shipping date: The date the goods or services will be delivered.

A sales order serves as an important document for both the seller and the customer. For the seller, it serves as a record of the sale, which is used to track inventory and revenue. For the customer, it serves as a confirmation of the order, which can be used to track the status of the shipment and ensure that the correct goods or services are delivered.

Sales order is also used to create an invoice for the customer which contains the details of the products and services that were sold, the prices, the tax and the shipping charges. Once a sales order is accepted by the customer, it is considered a legally binding agreement for the sale of the goods or services.

Process of sales order

The process of a sales order typically involves several key steps, including:

  1. Customer inquiry: The customer contacts the seller to inquire about a product or service. This can be done through phone, email, or in-person communication.
  2. Quotation: The seller provides the customer with a quotation, which includes the price and delivery schedule of the product or service.
  3. Order placement: Once the customer agrees to the quotation and decides to proceed with the purchase, the customer places an order for the product or service. The order may be placed through a website, over the phone, via email or in-person.
  4. Sales order creation: The seller creates a sales order, which includes the details of the customer’s order, such as the product name, quantity, unit price, shipping address, and delivery date. This step can be automated using an inventory management software, order management system, or CRM.
  5. Order validation: The seller verifies that the order is complete and accurate, and that the customer has the necessary credit or payment method to complete the transaction.
  6. Order confirmation: The seller sends the sales order to the customer for confirmation. The customer reviews the sales order and confirms that all the details are correct.
  7. Order processing: After the sales order is confirmed, the seller processes the order by allocating inventory, arranging for shipping and delivery, and preparing any necessary paperwork. This step can also be automated by an inventory management software or order management system.
  8. Shipping and delivery: The seller ships the product or provides the service to the customer according to the delivery schedule outlined in the sales order.
  9. Invoicing: After the product or service is delivered, the seller creates an invoice for the customer, which includes the details of the products or services that were sold, the prices, and any taxes or shipping charges.
  10. Follow up: After the order is complete, the seller may follow up with the customer to ensure satisfaction and gather feedback on the purchasing experience.

Types of Sales order

There are several different types of sales orders, each with their own specific purpose and characteristics. Some common types of sales orders include:

  1. Standard Sales Order: This is the most common type of sales order, and is used for regular, one-time sales transactions. It includes the customer’s contact information, the products or services being sold, the quantity, and the price.
  2. Blanket Sales Order: This type of sales order is used for customers who place regular, recurring orders for the same products or services. It includes a set of predefined terms and conditions that apply to all future orders placed under the blanket sales order.
  3. Rush Sales Order: This type of sales order is used for customers who need the products or services delivered quickly. It includes special instructions for expediting the order, such as rush shipping or expedited production.
  4. Drop-ship Sales Order: This type of sales order is used when the seller does not have the products in stock and must have them shipped directly from the manufacturer or supplier to the customer.
  5. Backorder Sales Order: This type of sales order is used when a customer places an order for a product that is currently out of stock. It includes an estimated delivery date for the product, and the order is fulfilled as soon as the product becomes available.
  6. Custom Sales Order: This type of sales order is used when the customer requests a product or service that is not part of the standard offerings. It includes the details of the custom product or service and the terms and conditions for its production and delivery.

Important Differences Between Purchase Order and Sales Order

Purchase Order Sales Order
Issued by the buyer to the supplier Issued by the seller to the buyer
Authorizes the supplier to supply goods or services Authorizes the seller to sell goods or services
Includes details such as quantity, price, and delivery date Includes details such as quantity, price, and delivery date
Payment is made after the goods are received Payment is made before the goods are dispatched
Reflects the buyer’s commitment to purchase Reflects the seller’s commitment to sell
Usually used in B2B transactions Usually used in B2C transactions

A purchase order (PO) and a sales order (SO) are two different types of business documents that serve distinct purposes. The key differences between the two are:

  1. Purpose: A purchase order is used by a buyer to request goods or services from a supplier, while a sales order is used by a seller to confirm a customer’s request for goods or services.
  2. Issuer: A purchase order is typically issued by the buyer, while a sales order is typically issued by the seller.
  3. Content: A purchase order typically includes details about the goods or services being requested, such as the item name, quantity, unit price, and delivery date, as well as terms and conditions of the purchase. A sales order typically includes similar information, but also includes additional details about the customer, such as shipping and billing addresses, and any discounts or special instructions.
  4. Legal Implications: Purchase order serves as a legally binding agreement between the buyer and supplier, and once it is signed by the supplier, it becomes a contract. A sales order, on the other hand, serves as a confirmation of the customer’s request and is not legally binding.
  5. Payment Terms: Purchase order includes the payment terms agreed upon by buyer and supplier, while sales order doesn’t include payment terms.
  6. Invoicing: Purchase order serves as a basis for creating an invoice for goods or services received by the buyer. In contrast, sales order serves as a basis for creating an invoice for goods or services delivered to the customer.

Both purchase order and sales order are important documents that play a critical role in the buying and selling process. They help to ensure that the correct goods or services are delivered to the correct party, at the correct time, and at the correct price.

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