Difference Between Purchase Order and Sales Order

Introduction

A Purchase Order is a request made by an organization to buy products from a supplier, detailing the products or quantities needed.

On the other hand, a sales order is a written confirmation from a business to a client that details the terms, amount, and delivery schedule for a prearranged supply of products or services.

Essentially, a purchase order lists items to be bought based on negotiated terms, while a sales order references the purchase order number and includes other relevant information. This article clarifies the difference between purchase orders and sales orders and their importance in business operations.

Purchase Order

The purchase order is a legal document outlining the terms under which the buyer will receive goods upon meeting the conditions of the agreement.

Following the receipt of goods, the buyer is required to adhere to the payment terms specified in the purchase order. Small businesses typically engage in straightforward purchasing transactions, while larger corporations negotiate extensive contracts with trusted suppliers.

Purchase orders allow companies to set terms and conditions over time, protecting against changes in market prices and removing the need to renegotiate contract specifics for every purchase.

It allows suppliers to anticipate future needs, enabling them to capitalize on market conditions by procuring raw materials at lower costs and scheduling workers for maximum efficiency rather than incurring overtime expenses for rush orders.

Upon receiving an invoice referencing the purchase order, the supplier is informed of the expected payment timeline and method of delivery, streamlining the payment process owing to pre-approved terms and anticipated transactions.

Purchase Order Copies

Purchase Orders are generated in five copies, which are distributed as follows:

The original copy is forwarded to the products' supplier.

The buying department keeps the second copy.

The third copy is provided to the goods receiving department as a notification of the expected materials.

The fourth copy is given to the cost accounting or accounts department for ledger recording.

The final copy, which includes the order and the anticipated delivery date, is sent to the department that initiated the material demand.

Follow-up on purchase orders is conducted to ensure timely delivery. Additionally, the purchasing department must verify that the order amount does not exceed the purchase budget or specified limit. If it exceeds the limit, approval from the finance department is required.

Purpose of Purchase Orders

Purchase Orders serve as a legal contract between the buyer and seller, authorizing

the delivery of specified materials and acceptance of goods by the receiving department. They also facilitate invoice processing for payment.

What is a Purchase Order Form (POF)?

The purchasing department uses a Purchase Order Form to request specific supplies from a supplier based on the details in the purchase requisition form signed by the procurement manager. The form includes:

• Purchasing firm's name and address
• Supplier's name and address
• Order date
• Payment terms
• Price
• Delivery instructions
• Delivery date

Sales Order

A sales order is a formal document that confirms the sale of specific products, typically created by the seller and sent to the customer. This document includes essential information needed for the delivery of goods to customers, such as the recipient's name and address, order number, delivery date, material description, payment terms, and any agreements between the parties involved.

Sales orders are crucial in supply chain management systems as they are legally binding documents that facilitate the smooth processing of orders. When a buyer issues a purchase order, it becomes the seller's responsibility to fulfill the order, which can be complicated when dealing with large organizations with varying delivery dates, locations, or specific requirements.

The sales order consolidates the relevant details from the purchase order, ensuring that each order is accurately processed and completed. It is important for order tracking, ensuring orders are current and delivered on time. The accounting division utilizes the data from the completed sales order to produce a shipping invoice, which is then forwarded to the customer.

Sales orders also offer valuable inventory information, assisting the organization's purchasing department in making informed decisions when ordering from suppliers. Maintaining accurate sales orders helps businesses manage inventory and meet customer needs efficiently.

What is a Blanket Order?

A blanket order is when a customer requests to buy a specific quantity of a product over a set period with pre-negotiated terms and conditions.

Purpose of a Sales Order

A sales order is issued to confirm the purchase of goods and services requested by a customer. It is a document that lists the buyer's specifications and provides specifics about the selling transaction.

Main Differences Between Purchase Orders and Sales Orders

A sales order demonstrates the seller's commitment to providing the customer with the specified products and services. In contrast, a purchase order expresses the client's wish to purchase particular goods and services from the seller.

When the buyer accepts the seller's offer, proposal, or quotation, a purchase order is issued. A Sales Order, on the other hand, is made in reaction to the buyer's purchase request.

A sales order checks the transaction information, whereas a purchase order confirms the transaction.

When the seller accepts a purchase order, it creates a legal contract between the buyer and seller. On the other hand, the buyer's acceptance of a sales order signifies acceptance of the transaction's conditions.

An external document called a buy order is used to ask a supplier for specified products. A sales order is an internal document that may be used internally to provide staff with information or shared with customers upon request.

Difference Between Purchase Order and Sales Order

Following are some differences between a Purchase Order and a Sales Order

Purchase Order Details

• Purchase Order Number
• Purchase Order Date
• Supplier Name and Address
• Buyer Name and Address
• Item Code
• Quantity of Each Item
• Item Description
• Item Rate
• Delivery Date, Time, and Location
• Freight Charges, Packing Charges, Payment Terms
• Shipping Method
• Purchase Manager's Signature

Sales Order Details

• Sales Order Number
• Sales Order Date
• Customer Name and Address
• Seller Name and Address
• Delivery Address
• Reference Purchase Order
• List of Materials
• Quantity and Rate of Each Item
• Payment Terms
• Delivery Date, Time, and Location
• Dispatch Location
• Transportation Mode
• Delivery Partner
• Authorized Person's Signature

Conclusion

In conclusion, the main difference between a purchase order and a sales order lies in its purpose and origin. The buyer initiates a purchase order to request goods or services, while the seller creates a sales order to confirm the sale and delivery of products.