What is a Sales Order?

Learn all about sales orders (also known as SOs), why they are issued, what they look like and what they mean to the businesses involved.

What Is a Sales Order?

A sales order is a document issued by a business with details of an order placed by a customer. It is a binding document between a seller and customer, usually containing information about an agreed sale and information about the parties involved such as:

  • Quantity
  • Unit price
  • The goods/services involved
  • Delivery date and address
  • Payment terms and details
  • Customer details
  • Supplier details

Example Sales Order

Here is a sample sales order:

Example Sales Order (source: Smartsheet.com)

Sales Orders v. Purchase Orders

A purchase order is a document issued from the buyer to the seller confirming details of what they have agreed to buy. A sales order is raised by the seller once they have received a purchase order with matching details.

Why Do They Matter?

Since a purchase order is a legally binding document, raising a sales order helps the business to keep track of orders placed so they can ensure they are fulfilled. They are particularly useful for large business or those that are involved in manufacturing because they may have to coordinate supply chains to get products in to fulfil sales orders.

Having a record of orders helps manage stock levels, obtain bulk discounts, manage cashflow and help with sales invoicing.

The Sales Order Process

Every business will have a slightly different sales order process depending on their size and industry. But in general, this is how the process may look:

  1. Customer requests a sales quote
  2. Customer accepts the quote and send a purchase order
  3. The seller raises a sales order and sends a copy to the buyer
  4. The seller prepares the order
  5. The seller dispatches the order and the buyer confirms delivery
  6. The seller raises a sales invoice
  7. Customer pays the sales invoice in accordance with the payment terms set out by the seller.

Accounting for Sales Orders

Sales orders will not be entered into the accounting system, they are maintained separately normally sequentially numbered.

Sales orders are considered part of the source records in accounting and are useful when it comes to planning cashflow, ordering goods and forecasting since they detail sales that are coming in.

Once the order is fulfilled and the sales invoice is raised they will be included in the accounting system.

The Difference Between a Sales Order and a Quote

A quote is raised by a seller at the very early stages of the sales order process. At this stage, no commitment has been made by the buyer to make the purchase. It is more of a fact-finding mission to gather more information about the cost of a product or service, what’s involved and what they will get for their money.

Once a quote is accepted, the seller will then request a purchase order to move to the next step of the sales order process, which is normally to raise a sales order.

The Difference Between a Sales Order and Sales Invoice

A sales order is raised when an order is placed by a buyer and a sales invoice is raised normally once the order is completed and delivered to the buyer. The sales order marks the start of the sales of process and the sales invoice signals it is coming to an end

A sales invoice will contain details from the sales order unless any amendments were deemed necessary on delivery for example for missing items.