What's The Difference Between a Purchase Order And a Sales Order?

What’s The Difference Between a Purchase Order And a Sales Order?

purchase and sales orderSome people still confuse purchase orders with sales orders. I am not certain if what confuses them are the words “purchase and sales” or the “order” at the end. While there is an overlap between purchase and sales orders, they differ greatly.

Misunderstanding these financial terms is not an option. So, I think drawing some parallels between the two would help.

What is a purchase order?

A purchase order (PO) is a document sent to a supplier when you or someone in your company purchases something. This could be for stationery, office furniture or even inventory. However, before a PO is sent to a supplier, a purchase requisition has to be approved by an authorized person.

As soon as a requisition is approved, a PO is then sent to the supplier, which automatically translates into a formal agreement.

Generally, all purchase orders should reflect:

  • The name of the product or service;
  • The quantity;
  • The price;
  • Any additional terms for the sale, such as discounts, etc;
  • A PO number;
  • The time frame for payment, and:
  • A delivery schedule.

Purchase orders can be either paper-based or electronic. One of the benefits of using an electronic purchase order is that decision-makers would be able to track orders, access reports, and process payments much faster.

Tweet thisAs soon as a purchase order is approved it becomes a binding contract.

What is a purchase order used for?

2Have the freedom of quick approvals for your purchase order-01

As previously mentioned, a purchase order plays a big role in the purchasing of goods. It is beneficial to all companies, irrespective of their size. Large companies are likely to have a procurement department dedicated to this function, while smaller business owners prefer to create purchase orders themselves.

What is a sales order?

A sales order (SO) is issued to the buyer by a supplier or service provider. In most cases, it is issued once payment is received from the buyer. Sometimes, a sales order can also be issued for goods bought on credit.

Moreover, there are different ways of creating a sales order.

  • First, a sales order can be created in digital format i.e. it is created in real-time and instantly delivered to customers.
  • Second, a configure-to-order (CTO) can be issued where products are configured or assembled to meet unique customer requirements, e.g. computers.
  • Third, an engineer to order (ETO) is issued in such situations where some installations are done after delivery. This mostly applies to factory machinery.

All the above approaches involve sales and the exchange of money, but they are not purchase orders. In other words, you can only send a purchase order to your supplier while a sales order goes to your customer only.

All sales orders should contain the following information:

  • The name of the product or service;
  • The quantity;
  • The price;
  • Terms of the sale, such as discounts, etc.;
  • A PO number and;
  • The time frame for payment and delivery schedule.

Key differences

Purchase order Sales order
  1. As soon as a purchase order is approved it becomes a binding contract.
  1. An accepted sales order only approves the sale and does not form a binding contract.
       2. A purchase order is prepared by the buyer and is sent to the supplier of goods and services.        2.  The supplier issues the sales order to the buyer.

When a sales order book is used as a purchase order book

Some entrepreneurs make a blunder of using a sales book as a purchase order or vice versa, most times because they don’t understand the difference between the two. A lot can go wrong if they continue making this mistake. The worst being recording purchases erroneously.

You can avoid this mistake by replacing books with a software.

How PO software helps companies

As an owner of a small business, it’s imperative that you become conservative. PO software can make this possible. Using  PO software such as Procurementexpress.com helps companies curb wasteful spending early on. You’d get instant notifications every time someone processes purchases. And you’d exercise some control on how people spend your money.

Although using PO software may seem like an unnecessary cost to a small business, it’s been proven that companies using electronic systems report a decline in invoice and payment errors:

  • More than two-thirds of those companies experience a decline in fraud; and
  • PO-based invoice vendors have increased by 52.83%.

Procurementexpress.com is an efficient spend management tool that can improve your company’s your purchasing process. You’d also be able to serve your customers faster than your competitors.

Want to simplify your purchasing process? Sign up for a free trial today.

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