In business, the customer is always right — but it can be hard to know exactly what has been agreed with them, and when. That is what order documents are for. Two of them cause more confusion than the rest: the sales order and the purchase order. For anyone unsure of the difference, here it is in detail.
What is the difference between a sales order and a purchase order?
A purchase order is placed by a buyer with a supplier, requesting goods or services. A sales order is raised by the seller in response, confirming what they will supply.
Both documents describe the same transaction, but from opposite ends of it. The purchase order travels from the customer to you; the sales order travels back from you to the customer. That direction is the whole distinction.
What is a sales order, and what does it involve?
A sales order is a document that outlines the items and quantities of a product or service that a customer is buying. It specifies what will be delivered to the customer, when it will be delivered, and at what price.
Characteristics of a sales order
- The customer is identified
- Quantities are agreed
- Price is agreed
- The delivery schedule is established
- Payment terms are set
- Terms of delivery are established
- It is confirmed by both parties
What is a purchase order, and what does it involve?
A purchase order (PO) is a request for goods or services from a supplier. It is an important document in business and should be filled out accurately and completely, to avoid delays in getting the goods or services you need. A PO is generally submitted by a company’s purchasing department, and it details what products or services are needed, the quantity required and the price the buyer is willing to pay.
Characteristics of a purchase order
- The supplier is identified, and so is the buyer placing the order
- Quantities are specified
- Price is the amount the buyer expects to pay, subject to the seller accepting it
- A required delivery date is given
- It carries an authorisation trail — someone with a budget approved the spend
That last point is why so many larger customers insist on their PO number appearing on your invoice: without it, their system cannot match your invoice to an approved commitment, and it will not be paid.
How the two work together
When a business buys materials or goods, it creates a purchase order — a written document setting out what will be bought, when, and how much will be spent. The buyer completes this before placing the order with the supplier.
The seller then creates a sales order, describing the products or services that will be supplied, the quantity, the price of each item and the delivery date. In practice many businesses use an order confirmation for exactly this role. On the buying side, Invoice Office raises the purchase orders you send to your own suppliers.