Confused between purchase orders and sales orders? You’re not alone! These two terms are often used interchangeably, but they have distinct differences that every business owner needs to understand.
A purchase order is a commercial document used to request goods or services from a supplier, while a sales order is a commercial document used to request goods or services from a customer.
Purchase Order vs. Sales Order
| Purchase Order | Sales Order |
|---|---|
| A purchase order is a commercial document that is used to request goods or services from a supplier. | A sales order is a commercial document used to request goods or services from a customer. |
| The parties involved in a purchase order are the buyer or purchaser and the supplier or vendor. | The parties involved in a sales order are the seller or vendor and the customer or buyer. |
| The purpose of a purchase order is to initiate a transaction, communicate requirements, and set expectations between the buyer and the supplier. | The purpose of a sales order is to initiate a transaction, communicate requirements, and set expectations between the seller and the customer. |
| The responsibility of initiating a purchase order typically falls on the buyer, who creates and sends the purchase order to the supplier. | The responsibility of initiating a sales order typically falls on the seller, who creates and sends the sales order to the customer. |
| Purchase orders usually require approval from an authorized person or department before they can be sent to the supplier. | Sales orders may or may not require approval before they are sent to the customer. |
| The quantity of goods or services to be purchased is specified. | The quantity of goods or services to be sold is specified. |
| The payment terms for the purchase are specified in the purchase order. | The payment terms for the sale are specified in the sales order. |
What is a purchase order?
A purchase order is a formal document that is created by a buyer and submitted to a supplier to request goods or services. The purchase order outlines the items or services that the buyer wants to purchase, as well as the quantity, price, delivery date, and other important details.
Once the supplier receives the purchase order, they will usually send an acknowledgment confirming that they can supply the requested goods or services.
What is a sales order?
Sales orders are documents that are created when a customer agrees to purchase products or services from a company. The sales order will include information such as the customer’s contact information, the products or services being purchased, the quantity of each product or service, the price of each item, and the total amount due.
The sales order may also include special instructions from the customer, such as shipping instructions or delivery dates. Once the sales order is complete, it is typically sent to the company’s accounting department so that they can generate an invoice for the customer.
Similarities between purchase and sales orders
- Both types of orders involve the exchange of goods or services for money.
- Both purchase and sales orders typically include some form of delivery or shipping arrangement.
- Both orders are usually tracked using some kind of order management system.
Benefits of using both purchase and sales orders
1. More accurate inventory management: When businesses only use sales orders, they may oversell products and end up with unhappy customers. By also tracking purchase orders, businesses can more accurately keep track of their inventory levels and avoid over-promising.
2. Better budgeting: Having a record of past purchases can help businesses budget for future needs more effectively. This is especially helpful when dealing with fluctuating or seasonal demand.
3. More negotiating power: With a complete picture of past spending, businesses can be more strategic when negotiating prices with suppliers and customers. This data can also be used to highlight areas where cost savings could be achieved.
How to implement both in your company
To implement purchase and sales orders in your company, you’ll need to first understand the basics of each. A purchase order is a document issued by a buyer to a seller, indicating the types and quantities of goods or services they wish to purchase. A sales order, on the other hand, is a document issued by a seller to a buyer, outlining the goods or services they wish to purchase.
To implement, you’ll need to set up some processes and procedures. For example, you’ll need to decide who will be responsible for issuing purchase orders and sales orders. You’ll also need to set up a system for tracking and fulfilling orders.
Key differences between purchase and sales orders
- The key difference between a PO and an SO is who creates the document. The buyer creates a PO while the seller creates an SO. Usually, a PO is created before an SO. The creation of a PO indicates that the buyer is interested in purchasing goods or services from the seller, while the creation of an SO indicates that the seller is ready and willing to sell goods or services to the buyer.
- Another is their purpose. POs are primarily used as a way for buyers to communicate their intent to vendors. SOs are primarily used as confirmation documents; they confirm that an order has been placed and include all of the relevant details regarding that order.
- It’s also important to note that POs can be binding or non-binding. Binding POs obligate the sellers to provide goods or services at the agreed-upon price, while non-binding POs simply express interest on behalf of the buyer. In contrast, all SOs are binding; they confirm that an order has been placed and obligate the seller to provide
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Conclusion
Purchase orders provide an accurate record of the goods or services being purchased by a business, while sales order forms provide detailed information on the products and services being sold to customers. Both types of documents serve their own unique role in the business process, making them invaluable tools for any organization. By understanding both purchase and sales order processes, businesses can ensure they maintain accurate records and remain compliant with relevant laws.
