Sales order vs. purchase order: What are the differences?

The main difference between a sales order and a purchase order is right in the name: you use purchase orders to make purchases of goods, and the seller agrees to fulfill the purchase by confirming the details with a sales order.  

This article looks at sales orders versus purchase orders in more detail, breaking down the main distinctions between these essential documents—so you can speak the same language as your suppliers and clients. 

Here’s what we cover:

What is a purchase order?

A Purchase Order (PO) is a commercial document your company will issue when it purchases goods such as supplies, raw materials, or inventory. It is formal proof of the transaction between buyer and seller, outlining the specifics of the purchase. These details include the type and quantity of goods or services, agreed-upon prices, delivery expectations, and payment terms.   

A clear, legally binding agreement between both parties not only helps you track and authorize the purchase but also provides you with a framework for managing the entire transaction. It minimizes the potential for misunderstandings or disputes, while generally streamlining the procurement process. 

Your purchase orders allow you to manage orders, track spending, and maintain accurate records for accounting and inventory control. 

What is a sales order?

Turning the tables, if you’re the seller you typically respond to a purchase order by issuing a Sales Order (SO). This is a confirmation document agreeing to the transaction and accepting the details. It confirms the items, quantities, prices, discounts, and delivery terms. It’s basically a mirror image of the purchase order, formally acknowledging that you have received the PO and are happy with the details.  

As the seller, you will then deliver the goods or render services requested, this time issuing an invoice. While the sales order confirms the purchase request, the invoice is your official request for payment once the transaction has been completed. 

Sales orders can be created in various formats, including digital, “configure-to-order” (for customized products), and “engineer-to-order” (for installations or specialized services). 

Sales order versus purchase order: Key differences

The obvious differences are the timing and direction of travel: the PO is issued to the vendor first, and the SO is issued to the buyer in response. 

But why not just have a box in the PO where the vendor can sign off their commitment to proceed? That raises some subtle but important reasons why both documents exist separately:  

1. Internal records 

If you’re the buyer, you can use POs to track spending against your budget, compare quotes from different vendors, or manage internal approvals. 

And when you’re selling, your sales order triggers internal fulfillment processes. It can guide you in allocating inventory, scheduling production, or assigning resources for service delivery.  

The use of separate documents allows both the buyer and the seller to manage their operations more efficiently. Each document provides a clear and trustworthy record of transactions, which can be important for legal and accounting purposes.

2. Customizations and modifications 

In some cases, the seller might request slight modifications to the buyer’s original PO, such as adjusting delivery dates or offering alternative products. A sales order allows you to document these changes clearly and get confirmation from the buyer. 

3. Integration with other systems 

Many businesses with integrated inventory management, accounting, and CRM tools use SOs and POs as trigger points across the full order life cycle. In effect, the two documents can function as messengers between these systems, generating updates and actions in various departments and processes. This streamlines data flow and improves overall efficiency. 

4. Legal status 

In most cases, the sales order represents the point at which formal acceptance of the transaction is legally binding, particularly if it mirrors the purchase order. However, the original purchase order may specify that only its exact terms are valid, in which case the purchase order can also be legally binding. Sometimes, the purchase order will also specify acceptable deviations from the original agreement. 

The point at which the contract becomes binding can also vary according to the industry in which you operate. And similarly, it could depend on the laws governing sales contracts in the jurisdiction where the transaction occurs. 

Streamline SO and PO processes with the right software

Buying and selling are core activities of any business and sooner or later you will need to issue both purchase orders and sales orders. As such, it’s important that you recognize the nuances of each document, including timing, purpose, and key information.  

It’s also crucial that you manage these documents efficiently to keep your financial records accurate and your cash flow healthy. 

Final thoughts

Using intuitive accounting and purchase order software can help you simplify your PO and SO management, while optimizing workflows, minimizing errors, and maintaining healthy relationships with your suppliers and customers.