Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
Sales Order vs. Purchase Order — 8 Key Differences
Key take-aways
- Sales order is a document that confirms the buyer’s request, while a purchase order lists the goods or services a buyer wants to buy from a supplier.
- Both orders expedite operations, giving clarity on products that are available and necessary orders, resulting in timely deliveries.
- POs give organizations the security of legal compliance and are legally binding agreements.
When it comes to procurement and business transactions, two documents play a significant role: the sales order and the purchase order. A business expert or a procurement manager can know the difference between a sales order and a purchase order, but these two documents are the same for many others. While these two may seem similar, they serve different purposes and are used at various stages of the procurement process.
That’s why for today, we will explore the differences between the sales order and purchase order and highlight some software commonly used to manage these orders.
Whatis a Sales Order?
Let’s first understand what a sales order is. A sales order is a confirmation document a supplier/seller issued to the buyer. It is a document that confirms the buyer’s request, including the agreed-upon terms and details such as the prices, quantities, payment method, delivery terms, and any other relevant information.
Simply put, a sales order is the seller’s response to the buyer’s purchase order.
From a procurement perspective, a sales order plays a vital role in the procurement process, as it provides clarity and documentation for both parties involved and facilitates the smooth flow of goods or services from the seller to the buyer. Typically, a sales order contains the following information:
- The name and address of the seller and buyer
- The name of the product
- The sales order number and the reference purchase order
- The quantity and price for each product
- The terms of payment and delivery
- The time frame for delivery
- The signature of an authorized person
What is a Purchase Order?
A purchase order is a document created and issued by the buyer to a seller/supplier. It is a document that serves as a list of goods or services that a business/buyer would like to purchase from a supplier.
The PO also serves as an official communication and authorization for the seller to proceed with the delivery of the requested items. It is also used as a reference for invoicing, inventory management, and other financial and logistical aspects of the procurement process.
When making a PO, it is vital to create it carefully, as it becomes a legal contract between the buyer and the seller once the latter accepts it. Hence, a PO must only be sent to the supplier once approved by an authorized officer. The purchase order contains the following information:
- The name of the product or services
- The name and address of the purchasing firm/ and supplier
- The purchase order number
- The quantity, price, description, and code for each item
- The terms of payment and delivery schedule
- The signature of the purchasing manager
Why is it important to Understand the Differences between SO and PO?
Understanding the difference between sales orders and purchase orders is vital for several reasons:
1. Ensures that the Correct Document is Used for the Correct Purpose
Sales and purchase orders are documents that serve different purposes and are used by other parties. A vendor creates an SO to initiate the fulfillment process, whereas a buyer sends a PO to start the purchasing process.
Knowing and understanding the differences between the two orders helps prevent misunderstanding and ensures that each party can fulfill what is expected in the transaction.
2. Streamlines Operations
SO and PO helps businesses to avoid inventory shortages by clearly understanding what products they have on hand and what products they need to order. Thus, it ensures timely deliveries and reduces errors or disputes in the procurement process.
Additionally, using SO and PO can help businesses to identify areas where they need to make necessary improvements.
3. Ensures legal compliance
Purchase orders are legally binding agreements between the buyer and suppliers. Using a PO assures the business that both parties comply with legal requirements.
Consequently, SO and PO can serve as evidence in disputes or conflicts, ensuring that both parties adhere to the agreed-upon terms and conditions.
What are the Most Important Differences?
Sales and purchase orders may seem similar, but as we pointed out since we started, they are two different documents with different purposes.
To better understand the difference between the Sales Order and Purchase Order, below is a table that shows their differences:
Software Toolsfor Managing Sales Order and Purchase Order
Various tools and software can assist businesses in managing Sales Orders and Purchase Orders efficiently. These tools can help companies to streamline their procurement process, manage their inventory, and maintain accurate records of their transactions. Here are some of the most popular procurement software tools available in 2024:
1. Tradogram
Tradogram is a top-rated e-procurement software solution that helps businesses manage their procurement process from end to end. It includes supplier management, contract management, and spend analysis.
2. Vendr
Vendr is a cloud-based procurement software tool that helps businesses manage their procurement process from requisition to payment. It includes supplier management, contract management, and spend analysis.
3. SelectHub
SelectHub is a cloud-based procurement software tool that helps businesses manage their procurement process from requisition to payment. It includes supplier management, contract management, and spend analysis.
4. Whatfix
Whatfix is a cloud-based procurement software tool that helps businesses manage their procurement process from requisition to payment. It includes supplier management, contract management, and spend analysis.
5. Kissflow
Kissflow is a cloud-based procurement software tool that helps businesses manage their procurement process from requisition to payment. It includes supplier management, contract management, and spend analysis.
Conclusion
In summary, understanding the distinctions between sales orders (SO) and purchase orders (PO) is essential for smooth procurement processes. SO confirms a buyer’s request from the seller’s perspective, while PO is a buyer’s document to initiate a purchase. Recognizing these differences ensures correct document use, operational efficiency, and legal compliance.
Frequentlyasked questions
What is the Sale Order?
A sales order is a confirmation document from a supplier/seller to the buyer. It is a document that confirms the buyer’s request, including the agreed-upon terms and details such as the prices, quantities, payment method, delivery terms, and any other relevant information.
What is the Purchase Order?
A purchase order is a document created and issued by the buyer to a seller/supplier. It is a document that serves as a list of goods or services that a business/buyer would like to purchase from a supplier.
Why is it important to understand the difference between these two orders?
To ensure that the correct document is used for the correct purposes, to ensure legal compliance, and to streamline operations.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
