Purchase order and sales order are two kinds of contracts that are established between buyers and sellers. These financial contracts have distinct objectives. Purchase order refers to a written document that is sent by the buyer to the seller when he wants to make a purchase. This document contains some basic information regarding the purchase order such as type, category, quality, quantity and terms on which the products are to be delivered to the buyer. Before the supplier delivers the required goods to the buyer, he creates a sales order, which is essentially a document that includes the important information regarding the order. It is basically a confirmation of the goods or products that are being dispatched to the customer.
In this article, the two terms are going to be discussed in detail and the differences between the two will be elaborated.
Definitions and explanations
Purchase order refers to a written request that is made by a customer to a supplier to deliver goods in a specific quantity, quality and at the agreed price, terms and conditions. The document is of a commercial nature and it becomes binding on the customer to receive the goods included in the document if the specified conditions are fulfilled. The purchaser then has to make the payment according to the schedule decided in the purchase order. Hence, a purchase order is a kind of formal agreement between the buyer and the supplier.
A purchase order includes details like description of products/services, date, order number, name and address of supplier, quantity of goods being delivered, price, payment schedule and delivery details.
A significant part is played by purchase orders during the purchase of goods. It has benefits for all organizations, regardless of their size. In smaller companies, it is the business owners themselves who develop purchase orders. The purchase transactions of these companies are quite straightforward. On the other hand, bigger companies usually have a procurement department that handles all purchase transactions. These companies usually form large-scale contracts with trusted suppliers for the long-term. This ensures that the company does not have to negotiate the terms and conditions for each transaction.
Purchase orders may be written on paper, or can be electronic. An electronic purchase order has the advantage of enabling decisions makers to keep a track of orders, review reports and make payments more rapidly.
Sales order refers to the written document in which the sale of particular goods is confirmed. It is the seller who prepares the sales order and dispatches it to the customer. The sales order includes the details of the information required for delivering goods to the customers. These include the name and address of the recipient, order number, delivery date, description of material (i.e. the type, quality, quantity, price of goods being sent to the customers), payment schedule and other terms and conditions decided between the two parties.
When the sales order is accepted by the customer, the sale is confirmed and the seller is supposed to provide goods to the customers at the specified price and time.
A sales order can be generated in different ways.
- A sales order can be in a digital format, i.e. it is developed in real-time and delivered to customers immediately.
- A configure-to-order (CTO) can be created in which the products are customized or developed in such a way that they fulfill the requirements of the customers.
- An engineer to order (ETO) can be developed when certain installations are to be carried out following delivery of goods. This is mainly applicable to factory equipment.
Difference between purchase order and sales order
The difference between purchase order and sales order is given below:
Purchase order is a written contract established by the buyers on the basis of the terms agreed with the seller. When a purchase order is accepted by the seller, the buyer becomes liable to accept the goods when they are delivered. On the other hand, sales order is a written agreement developed by the seller on the basis of the information given in the purchase order. When the sales order is accepted by the buyer, the sale is approved.
2. Developed by
Purchase order is developed by the buyer while sales order is developed by the seller.
Purchase order is a written document that is used for placing order for goods, while sales order is a written document that is used to confirm the sale.
4. Impact on approval
When a purchase order is accepted, it turns into a binding contract. On the other hand, a sales order does not become binding upon approval; rather, it confirms the sale.
Purchase order vs sales order – tabular comparison
A comparison of purchase order and sales order in tabular form is given below:
|A written agreement sent by the buyer to the seller to specify the details of the items required||A written agreement that is sent by the seller to the buyer to confirm the delivery of items required by the buyer|
|Place order for the goods required||Confirm the sale|
|Impact on approval|
|Legally binding||Not legally binding; approves the sale|
Conclusion – purchase order vs sales order
Purchase order and sales order are used all over the world to establish contracts between manufacturers, suppliers and retailers. Purchase order is a document developed by buyers for ordering goods, while sales order is a document developed by sellers to confirm the sale. The two documents are prepared commercially and include detailed information about orders for goods or services.
There is a close link between these two types of contracts in the purchase process. The customer sends the purchase order to the seller, who then approves the order after accepting the order details and the terms and condition specified in the purchase order. The seller then sends the sales order to the customer as a confirmation of the sale. After the sales order is accepted by the customer, the seller dispatches the goods to the customer in accordance with the terms agreed between the buyer and seller. Hence, the two documents are very important as they ensure that the transactions between buyers and sellers take place in a smooth manner and without any disagreements.