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<\/a><\/p>\nSo, what is a sales order, how is it different from other key sales documents, and how does it fit into your sales process? I\u2019m glad you asked, and I\u2019ll answer those questions and a few more below.<\/p>\n
Table of Contents<\/strong><\/p>\n <\/a> <\/p>\n A sales order is a commercial document \u2014 prepared by a seller and issued to a customer \u2014 confirming the sale of goods or services involved in a given transaction.<\/p>\n Confusing this document with an invoice is common, but they are two documents with separate functions. As a business owner, I find it helpful to think of a sales order as a detailed summary of the goods or services I will provide to my customers.<\/p>\n A sales order contains details about the sale, including the quantity, quality, and price of any goods or services exchanged. It also covers things like delivery date, delivery address, payment method, and any other information relevant to the terms and logistics of the sale itself.<\/p>\n A sales order is an internal document \u2014 generated by the vendor and kept on record. This allows companies to keep track of the orders they fulfill.<\/p>\n Manufacturers, retailers, wholesalers, and supplies commonly use sales orders. However, you\u2019ll find them used in nearly every industry and niche.<\/p>\n Like any other business document, there are variations to sales orders. The longer you\u2019re in business, the more likely you will see four types of sales orders. Depending on the sale, one sales order type might work better than the others.<\/p>\n In my opinion, cash sales are the simplest type of sales orders. You\u2019ll use this sales order when a customer places an order and pays for it. Either they\u2019ll pick up the order from your storefront, or you\u2019ll issue a shipping date.<\/p>\n Cash sales are typically standard for B2C sales. In other words, the customer does not need to go through accounts receivable to purchase, and no purchase order is required. They simply give you their money, and you provide goods or services within an estimated time frame.<\/p>\n Does your customer need their order as soon as possible? If so, I suggest using a rush order.<\/p>\n A rush order is used when a customer\u2019s needs are met the same day the order is placed. This is usually well before the standard timeframe of delivery. Unlike cash sales, where the order is paid for before delivery, rush order payments are made after exchanging goods or services.<\/p>\n A scheduling agreement is an external document detailing delivery dates for goods and services, pricing, quantity, and payment terms.<\/p>\n Let\u2019s pretend I am hosting three separate holiday parties. At each party, I want to serve charcuterie boards. When I place my order with the caterer, I tell them I do not want all three charcuterie boards delivered at the same time since my parties are on separate days.<\/p>\n Instead, I want one board delivered on the date of the first party, one on the date of the second party, and the final delivery on the date of the third party.<\/p>\n The scheduling agreement helps track delivery dates so that both the seller and the customer are on the same page.<\/p>\n If your business coordinates with another company for fulfillment and shipping, you\u2019ll want to use third-party sales orders.<\/p>\n I like to think of third-party sales orders as \u201cto-do lists\u201d for the other company. While this type of sales order details delivery dates and payment information, it also doubles as a packing list. It helps the other company understand which products go into the box, where they should be shipped, and when.<\/p>\n <\/a> <\/p>\n If you\u2019re a vendor, sales orders are crucial to keeping track of your inventory. They allow you and your business to stay on top of:<\/p>\n Remember \u2014 agreeing to the terms of a purchase order usually makes a deal legally binding. If you have questions about a pending purchase order, seek legal counsel before signing. Trust me, maintaining detailed records of your sales orders will help ensure you can deliver on those agreements. And, when you can fulfill orders on time, you maintain your brand\u2019s reputation.<\/p>\n Sales orders are also central to reducing the risk of material misstatement in your company\u2019s financial reporting. Material misstatement is any kind of inaccuracy in a financial statement that may significantly impact the financial decisions of anyone relying on that statement\u2019s information.<\/p>\n I\u2019m not trying to stir panic, but material misstatements in reporting inventory balances can have some very real consequences.<\/p>\n For instance, misstating ending inventory can inflate or reduce your company’s profits. As you can assume, neither of those outcomes looks good if you\u2019re being audited.<\/p>\n Pro tip: <\/strong>It\u2019s absolutely crucial to maintain accurate records of your sales orders. I suggest conducting quarterly internal audits to catch any potential material misstatements and ensure accuracy.<\/p>\n <\/a> <\/p>\n I\u2019m not a mind reader, but I bet the next question you might ask is, \u201cAre sales orders different than quotes?\u201d<\/p>\n The answer is yes. Sales orders are different from quotes.<\/p>\n Though vendor-generated sales orders and quotes discuss a potential sale, the two documents serve very different purposes. I like to think of a sales order as the byproduct of the sales process. It\u2019s generated after a sales decision is made.<\/p>\n A quote is an estimation. It gives the buyer a general idea of how much they can expect to pay. The document contains an itemized list of products and services along with their respective prices and terms of sale.<\/p>\n A quote is non-binding. Once a buyer accepts a quote, they move to the next step in the process by sending a vendor something called a purchase order.<\/p>\n When I worked as an office assistant, I became very familiar with purchase orders. A purchase order is an official confirmation of a buyer\u2019s intent to purchase from a vendor. It\u2019s a buyer-issued document that confirms certain aspects of a transaction, including details like prices and requested quantities.<\/p>\n For example, if I needed to purchase 23 notebooks at three dollars a piece, the purchase order would look like this:<\/p>\n Once a vendor receives and accepts the terms of a purchase order, they create a sales order based on its details.<\/p>\n Sales orders and purchase orders are inherently interconnected. The key difference between them is who generates the document and who receives it.<\/p>\n A purchase order comes from a customer, is issued to a vendor, and lays out the terms of a potential sale. A sales order comes from a vendor, is issued to a customer, and confirms the vendor\u2019s acceptance of the terms set in a given purchase order before delivery.<\/p>\n Once accepted by a vendor, a purchase order often constitutes a legally binding contract. If a vendor doesn\u2019t deliver on the agreed terms of a purchase order, a buyer may take legal action against the seller in certain circumstances, and vice versa.<\/p>\n Now that I\u2019ve covered sales and purchase orders, the invoice is the next document in the sales process. If you\u2019re wondering, \u201cIs a sales order the same as an invoice?\u201d The answer is no, and here\u2019s why.<\/p>\n An invoice is sent from the seller to the buyer and specifies the amount of money the buyer owes a vendor for exchanging goods and services agreed upon in the sales and purchase orders. It can be easy to confuse sales orders with invoices. Both are vendor-generated and list the details of a specific sale.<\/p>\n However, the main distinctions between the two are highlighted in each document\u2019s purpose and timing. A sales order confirms a sale and prompts a vendor to start assembling, packaging, or preparing the goods and services requested in a purchase order.<\/p>\n After this step, invoices are generated. Using the details specified in a sales order, invoices tell buyers how, when, and how much to pay for the goods and services they\u2019ve purchased.<\/p>\n Pro tip: <\/strong>Check out these free invoices<\/a> for an easy way to track your revenue and payments.<\/p>\n <\/a> <\/p>\n Invoices are essential because they definitively settle deals for vendors and set official payment timelines. Typically, 30 days is a standard payment timeframe. However, the timeline can vary from business to business. For example, in my business, some clients pay my invoices within 30 days and others within 60 days.<\/p>\n Invoices are essential for record-keeping purposes. An invoice is the most concrete evidence buyers and vendors have for a sale. Keeping track of invoices allows a company to stay on top of how much it\u2019s spending or earning, which employees are responsible for any sales or purchases, and any outstanding debt the company may have.<\/p>\n As a business owner, I\u2019ve found it\u2019s proper practice for businesses to track invoices for tax purposes. The IRS suggests that businesses maintain a running summary of all business transactions. Keeping detailed records of invoices can be a critical part of that process.<\/p>\n Invoices also help businesses from a legal perspective. They provide documentation of how and when a customer bought goods or services from a vendor. A signed invoice shows a mutual understanding between a buyer and a vendor regarding a specific purchase, reducing the risk of legal action over pricing.<\/p>\n In other words, invoices are critical for tracking revenue and preventing potential legal or customer issues.<\/p>\n Pro tip: <\/strong>I highly recommend standardized invoice templates. I\u2019ve found they speed up the drafting process and eliminate the risk of accidentally omitting essential items. You can use dedicated tools like HubSpot\u2019s Invoice Generator<\/a> to make this process quicker.<\/p>\n <\/a> <\/p>\n <\/a> <\/p>\n Now that I\u2019ve explained a sales order, it’s helpful to discuss the information your sales order should contain. As seen in the example above, typically a sales order includes the following:<\/p>\n Pro tip: <\/strong>I\u2019ve found keeping track of this information in a CRM<\/a> helpful. For example, you can streamline the sales order process by pulling relevant customer details from your CRM and populating them into your sales order.<\/p>\n\n
What Is a Sales Order?<\/strong><\/h2>\n
Types of Sales Orders<\/h3>\n
Cash Sales<\/h4>\n
Rush Orders<\/h4>\n
Scheduling Agreement<\/h4>\n
Third-Party Order<\/h4>\n
Why Are Sales Orders Importa<\/strong>nt?<\/strong><\/h2>\n
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How Are Sales Orders Different from Quotes?<\/strong><\/h2>\n
Sales Order vs. Purchase Order<\/h3>\n
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Sales Order vs. Invoice<\/h3>\n
Why Are Invoices Important?<\/strong><\/h2>\n
Sales Order Example<\/strong><\/h2>\n
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<\/p>\nSales Order Format<\/strong><\/h2>\n
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