The sale order is initiated by a vendor. It serves as a confirmation of the purchase order issued by the buyer. Thus, it is an important and interconnected document with a purchase order that serves both parties in a transaction.
The sale order offers several uses and benefits to the issuer. It follows a similar format and contains useful information as a purchase order.
Let us discuss what is a sale order, how it works, and what purpose it serves to both parties in a trade transaction.
What is a Sale Order?
A sale order refers to a document generated by a seller that details the goods or services ordered by a buyer.
A sale order also works as a confirmation for the purchase order sent by the buyer. It acts as approval from the seller. It also contains the same information such as the date, order number, details of products, and delivery notes.
The sale order serves the same purpose for the seller as the purchase order for the buyer. Once the seller confirms the purchase order after any amendments and alterations, it issues a sale order.
Once issued, a sale order confirms the order. A copy of the document is forwarded to the buyer. Copies of the same document are then shared internally with the credit and manufacturing departments. The credit department can set the discounts applicable and payment terms with the buyer.
Finally, the manufacturing department can start production or servicing the order through a sale order confirmation.
What Information is Included in a Sale Order?
A sale order essentially replicates all the information provided on a purchase order. However, as the document is initiated by the seller, it can include any other important point that helps the seller.
Usually, a sale order will include the following informative points for the convenience of the buyer and the seller.
- A unique sale order identification number and number of copies count for internal record-keeping of the seller.
- Seller’s company name, address, and contact numbers.
- Buyer’s company name, address, and contact numbers.
- Billing information of the buyer.
- Shipping address of the buyer.
- Product details as agreed by the buyer and seller. Usually, these details should be the same as noted on a purchase order.
- The pricing information that includes prices per item, quantity, discounts applicable, and grand total before taxes.
- VAT and other tax information.
- Net price after discounts and taxes.
- Payment terms and any other specific notes regarding the sale order.
Steps in a Sale Order
A sale order is issued after receiving the purchase order from the customer. It can involve different steps depending on the automation or manual procedures followed by both parties in a sale transaction.
Here are a few general steps that take place with a sale order.
- A customer requests for quote (RFQ) from the seller. It is an initial document that shows the interest of the buyer.
- The seller then sends a quotation of goods as mentioned by the buyer. The quote includes a company’s offer prices, discount terms, product specifications, and offers (if any).
- The buyer considers and approves the quotation. Both parties can negotiate pricing, product customization, and delivery terms at this stage.
- Once the quotation is settled, the buyer issues the purchase order and sends it to the seller.
- The seller receives and confirms the purchase order.
- The seller issues a sale order to confirm the order processing.
- A copy of the sale order is distributed internally to start the manufacturing or order processing internally.
- The seller uses the same details as on a sale order to create an invoice for the buyer. The invoice would contain the payment terms and reference to the sale order among other information.
Usually, the buyer pays within the timeframe allocated on the invoice. However, payment terms can differ as agreed upon by both parties in the trade contract.
Pros and Cons of Using a Sale Order
A well-documented sale order serves several benefits to a buyer and a seller at the same time.
Order and Inventory Management
Sale order is a useful organizing tool for a business internally. You can follow the order steps by matching an order against the product processing stages. It helps in keeping the workflow smooth.
Similarly, a sale order is a useful document that helps businesses in inventory management. At each stage, a business can compare the inventory levels required to fulfill orders.
Sale orders follow and match the same information as agreed upon by both parties through a quotation and a purchase order. In that sense, it avoids any misstatements in the financial records.
Improved Payment System
A sale order clearly provides instructions and offers to the buyer for payment terms. Thus, it can serve as a useful communication document for improving the payment terms between both parties as well.
Smooth Customer Relations
If there are no financial misstatements and payment terms are clearly communicated to the customers, it helps a business keep smooth customer relationships. In the long run, it can prove beneficial for a business.
A sale order does not offer any disadvantages to the user. However, with modern business requirements, the use of a proper sale order system can offer some limitations to a few businesses.
Automation is Costly
Most sale order systems require automation that can be costly for new or small businesses. However, a sale order offers several benefits in the long run that can cover the initial costs.
Requires Additional Resources
Running and handling a sale order system may require additional hardware and human resources. Thus, it can prove costly for a business in that sense as well.
Sale Order Vs. Purchase Order
A sale and a purchase order are closely linked documents that serve similar benefits to a seller and a buyer respectively. Both documents include similar information for consistency.
A purchase order is initiated by the buyer. It is a confirmation of price quotation and the intention of purchasing goods from a seller. Once approved, the purchase becomes legally binding for the seller.
Similarly, a sale order is a confirmation issued by the vendor for a purchase order. Once approved by the buyer, it becomes a legally binding document for the buyer. If the buyer does not make payment according to the sale order, the seller can take legal action against the buyer.
Essentially, both documents offer legal protection to their respective users. Both documents also serve as communication documents for a trade transaction.
Also, both parties can use a purchase and a sale order for internal efficiency and record-keeping purposes as well. For instance, these documents help issuers in financial records, inventory management, and customer relationships.
Sale Order Vs. Quotation
A quotation and a sale order are both issued by a seller. Both documents may contain similar information. However, both documents serve different purposes for the two parties involved in a transaction.
A quotation form is a formal price offer from a vendor to its buyer. It is issued at the formal request of the buyer. It contains pricing, quantity, product customization, and payment terms offered by the seller. The buyer may request several revisions before finally approving a quotation.
On the other hand, a sale order is a confirmation of the purchase order. The buyer issues a purchase order after confirming the terms in the quotation. The vendor then issues a sale order after reviewing and approval of the purchase order.
A quotation is not a legally binding document as it serves as an offer to the buyer. Contrarily, a sale order serves as a legally binding document for the buyer to make payment as agreed.