What is a Sales Order? Definition, Examples, Template

Sales Order Definition

A sales order is a document generated by a business to confirm a customer’s purchase of goods or services.

 

It serves as an official record of the transaction and acts as a reference point throughout the fulfilment and billing stages.

 

It outlines the details of the transaction, including the products, quantities, prices, terms of sale and delivery details.

What is a Sales Order

Sales Order Process

Here’s a typical flow of how the sales order process works:

 

  1. Customer Places an Order: The process starts when a customer requests goods or services from a business.

 

  1. Sales Order Creation: Once the seller receives the customer’s request, they create a sales order document. At this stage, the sales order is often viewed as a legally binding contract that locks both parties into the transaction.

 

  1. Order Fulfilment: Following the sales order confirmation, the seller begins fulfilling the order, which could involve packaging the goods, scheduling services, or providing the requested product or service.

 

  1. Shipping and Delivery: If the order involves physical goods, shipping and delivery take place according to the agreed timeline.

 

  1. Invoice and Payment: After the order is fulfilled and delivered, the seller issues an invoice based on the sales order, and the customer makes payment according to the agreed-upon terms.

Sales Order Process Example

Let’s now look at a simple example of a sales order process, using a business that sells office furniture.

Step 1: Customer Places an Order

A customer places an order for 100 office chairs, each costing £50.

 

They request delivery within 10 business days to their office address.

Step 2: Sales Order Creation

The business creates a sales order with the following details:

Sales Order Number

0001

Product

Office Chairs

Units

100

Price

£50 each

Total Price

£5,000

Delivery Date

Within 10 business days

Shipping Charges

£150

Tax

£1,000

Total Order Value

£6,150

Payment Terms

Within 30 days

Step 3: Order Fulfilment

The business processes the order and prepares 100 office chairs for shipment.

 

The order is assigned to the warehouse and logistics for delivery.

Step 4: Shipping and Delivery

The order is shipped to the customer within the agreed terms set out on the sales order.

Step 5: Invoice and Payment

Once the order is shipped, an invoice is created based on the sales order and sent to the customer.

 

The customer will then be required to make payment based on the terms outlined in the sales order (ie within 30 days).

Sales Order Template

A typical sales order template could look like this:

 

  • Sales Order Number: A unique identifier for the sales order, ensuring easy tracking and reference.
  • Customer Information: This includes the name, address, and contact details of the customer placing the order.
  • Product or Service Description: Detailed information about the products or services being sold. This includes product names, model numbers, and any other specifications that define the goods.
  • Quantity: The number of units the customer intends to buy. This is essential for ensuring that the right amount of product is prepared.
  • Price: The cost per unit and the total amount for the order.
  • Order Date: The date on which the sales order was created.
  • Delivery Instructions: Any specific instructions for delivery, such as delivery address, packaging requirements, or preferred delivery date.
  • Payment Terms: Details on how and when payment is to be made, such as upfront, instalments, or credit terms.
  • Tax and Shipping Costs: Any applicable taxes (ie VAT) and shipping or handling charges that are added to the order cost.

Why Are Sales Orders Important?

Sales orders offer several advantages for businesses and customers:

Clear Communication

A sales order is an official agreement between the customer and the business.

 

It ensures that both the business and the customer are on the same page and acts as a clear, written confirmation of the transaction, preventing misunderstandings about what was agreed upon.

Inventory Management

Sales orders play a crucial role in inventory management by providing a clear view of the inventory that has been purchased before an invoice is even sent.

 

This means that businesses can proactively reorder items in time, based on the sales order, to prevent stock shortages.

Order Accuracy

Sales orders help ensure that the right products are delivered in the correct quantities and the correct price agreed.

 

By reviewing the sales order, customers can easily spot if there’s an error in their order, such as incorrect quantities or wrong product details.

 

This provides an opportunity to correct any mistakes before an invoice is issued and payment is requested.

Sales Order vs Invoice

A sales order and an invoice are both essential documents in the sales process, but they serve different purposes at different stages of the transaction.

 

Here’s a clear breakdown of the differences:

Timing

  • Sales Order: Created when the customer places an order. Typically used internally, but can also be sent to the customer to confirm the order placed.
  • Invoice: Issued after the goods or services have been delivered (or after the order has been completed) as a formal request for payment from the customer.

Purpose

  • Sales Order: Used to confirm the order details, such as product types, quantities, and delivery dates, and to track what the business needs to fulfil.
  • Invoice: Serves as a bill, formally asking for payment for the products or services provided.

Payment

  • Sales Order: Does not request payment. It’s simply a record of what the customer wants to buy.
  • Invoice: Requests payment, specifying how much the customer owes and when the payment is due.

Content

  • Sales Order: Lists the items, quantities, and other order details but does not include any financial details or payment instructions.
  • Invoice: Includes the total amount due, taxes, discounts and payment terms.

Legal Status

  • Sales Order: It’s a confirmation of an order and does not demand payment. It’s mainly used for internal tracking and order fulfilment.
  • Invoice: It is a legal document that serves as a formal request for payment, outlining the financial terms of the sale.

Sales Order vs Purchase Order

While a sales order is issued by the seller to confirm a customer’s purchase, it’s important not to confuse it with a purchase order.

 

A purchase order is typically created by the customer before the sales order and acts as an official internal confirmation from the customer, authorising the purchase to be made.