Sales order vs purchase order: what is the difference?

What is the difference between a sales order and a purchase order?

A purchase order (PO) is the document a buyer sends to a supplier to order goods or services at an agreed price, quantity and date. A sales order is the document the supplier creates in its own system when it receives and accepts that order. Same deal, two sides: the buyer tracks its purchase, the seller tracks its sale.

A simple case. A hospital orders 200 boxes of examination gloves from a medical distributor. The hospital’s purchasing system issues purchase order 4500012345. The distributor receives it and keys it, or imports it, as sales order 70001234. The distributor uses its sales order to check stock and credit, pick the boxes, ship them and send the invoice. The hospital uses its purchase order to receive the boxes and check the invoice. Each company only sees its own document in its own system.

The web pages that answer this question mostly agree on the basic order of events: the buyer issues the purchase order, then the seller creates the sales order. They differ on details, for example whether the seller sends the sales order to the buyer or keeps it as an internal record. Both happen. Many sellers keep the sales order internal and send the buyer a separate order acknowledgement, and some send a copy of the sales order as that acknowledgement.

What a purchase order contains, its types and its approval steps are explained in what is a purchase order. This page is about how it meets the seller’s document.

Which comes first, the purchase order or the sales order?

In business-to-business buying, the purchase order comes first and the sales order follows. The usual sequence has six steps.

1. The buyer’s requester raises a purchase requisition, an internal request. The supplier never sees it.
2. The buyer approves the requisition and sends a purchase order to the supplier, by email, through a supplier portal or as an electronic message (in the X12 standard used mostly in North America, transaction set 850, “Purchase Order”).
3. The seller creates a sales order from the purchase order and checks stock, price and the customer’s credit limit.
4. The seller confirms the order to the buyer: accepted, accepted with changes, or rejected. In X12 this is transaction set 855, “Purchase Order Acknowledgment”. In Peppol, the European e-procurement network, it is the order response.
5. The seller ships against its sales order and sends an invoice that quotes the buyer’s PO number.
6. The buyer receives the goods against the purchase order and matches the invoice to both before paying.

Peppol’s order response shows the possible answers clearly. Its header codes are AB (received, not yet processed), RE (rejected), AP (accepted without change) and CA (accepted with changes at line level). Only four things may change in a Peppol order response: quantity, delivery period, replacement item and price.

A sales order can also exist with no purchase order at all. A small business orders by phone, a consumer buys in a web shop, or a sales representative takes an order at a customer’s site. The seller still creates a sales order; the buyer simply has no PO number to give. Whether a purchase order is needed before buying is a question of the buyer’s own policy, explained in purchase requisition vs purchase order.

How do a sales order and a purchase order compare, point by point?

Neither document is an invoice. No payment is due on a purchase order or on a sales order. The difference between the order and the bill is covered in purchase order vs invoice.

When does the order become binding?

In most cases, the purchase order is the offer and the seller’s answer is the acceptance. The sales order itself is usually an internal record, so what binds is what the seller tells or does in response: an acknowledgement, a shipment, or both. There is one common exception: if the supplier first made a firm offer, such as a signed quotation open for acceptance, the purchase order can itself be the acceptance.

In the United States, for the sale of goods, the Uniform Commercial Code (section 2-206) says that an order to buy goods for prompt shipment invites acceptance either by a prompt promise to ship or by the shipment itself. The seller does not need to sign anything: shipping the goods can be the acceptance.

Problems start when the seller’s acknowledgement does not match the purchase order. The same code (section 2-207) says that an acceptance or a written confirmation can still close the deal even if it states additional or different terms, unless the seller makes its acceptance expressly conditional on the buyer agreeing to them. Between merchants, additional terms become part of the contract unless the offer limited acceptance to its own terms, the new terms change the deal in a material way, or the buyer objects within a reasonable time. Example: the PO says nothing about late payment, and the acknowledgement adds interest on overdue invoices in small print. If nobody on the buyer’s side reads the acknowledgement, the dispute appears when the first interest charge is invoiced.

In Peppol ordering, the order that both sides agree through acceptance “has the commercial and legal status of a contract”. Other countries and contracts follow their own rules; a framework agreement or a master contract often decides in advance whose terms apply to each order.

Practical rule for buyers: ask suppliers to confirm every order, and compare each acknowledgement with the purchase order on price, quantity, delivery date and terms.

How do the PO number and the sales order number reach the invoice?

The seller keeps the buyer’s PO number on its sales order, because the buyer will ask for it on the invoice. ERP systems have a field for it. In SAP S/4HANA Cloud Public Edition, for example, the buyer’s PO number is entered on the sales order as the customer reference, and the system can be set to check whether the same purchase order number has already been used on another sales order. That check stops the seller from delivering the same order twice when a buyer sends it twice.

The invoice then carries both numbers. In a Peppol BIS Billing 3.0 e-invoice, the purchase order reference is defined as “issued by the Buyer” and the sales order reference as “issued by the Seller”. When a seller has only its sales order number, the rules ask it to put “NA” in the purchase order reference, so the buyer can see at once that no PO number was given.

On the buyer’s side, the PO number is the key for matching. An invoice that quotes only the seller’s sales order number cannot be matched automatically to the purchase order and the goods receipt; someone in accounts payable has to look it up by hand. How that check works is explained in three-way match.

When does a sales order create a purchase order?

A company that resells goods is a seller and a buyer at the same time. When it does not hold the item in stock, its sales order can trigger its own purchase order to a supplier. The most common case is drop shipment, also called a third-party order: the reseller sells, its supplier ships straight to the end customer.

SAP’s documentation describes the flow. In sales order processing, the system can create purchase requisitions automatically. The supplier delivers to the customer directly. The reseller bills its customer on the basis of the supplier’s shipping notification or the supplier’s invoice. So one end-customer order produces four documents: the customer’s purchase order, the reseller’s sales order, the reseller’s purchase order to its supplier, and that supplier’s sales order.

For a procurement team, the lesson is to keep the chain of numbers. When a distributor drop-ships, the delivery note may carry the manufacturer’s references; your own PO number must still appear, or the goods receipt will be hard to record.

Which other documents are confused with sales and purchase orders?

Quote (quotation)

The seller’s offer of a price before any order. The buyer’s purchase order often refers to it.

Purchase requisition

The buyer’s internal request to buy, before a purchase order exists. The supplier never receives it.

Order acknowledgement

The seller’s answer to a purchase order: accepted, accepted with changes or rejected. It is often printed from the sales order.

Blanket purchase order

A purchase order that covers many deliveries over a period; the seller may create one sales order per release. See blanket purchase order.

Invoice

The seller’s request for payment after delivery, quoting the buyer’s PO number.

How the buyer’s whole cycle (procure-to-pay) and the seller’s whole cycle (order-to-cash) line up step by step is explained in order-to-cash vs procure-to-pay.

What should a buyer check on the supplier’s side?

• Every purchase order gets an acknowledgement within an agreed time, for example two working days.
• The acknowledgement matches the purchase order on price, quantity, unit of measure, delivery date and terms; any difference is accepted or refused in writing.
• The supplier has written your PO number on its sales order, so it appears on the delivery note and on the invoice.
• One purchase order gives one sales order. A PO sent twice by email should not lead to two deliveries.
• Changes go through a revised purchase order, not through a phone call that only changes the supplier’s sales order.

Software that sends purchase orders electronically and reads the supplier’s acknowledgements makes these checks routine. What to look for in such a tool is covered in purchase order software.