What is a Sales Order? Definition, Meaning, Creation & Presentation

September 22, 2017 Topics :

According to Wikipedia

The sales order, sometimes abbreviated as SO, is an order issued by a business or sole trader to a customer

A sales order (SO) is an internal document generated by the seller, indicating that the customer is now ready to purchase products and services. It is a confirmation document that authorizes sale of listed items for the given amount. The document gives a clear understanding about what the customer has decided to buy. SO is often considered a legal contract that makes it mandatory for the seller to sell products at the agreed upon price. The seller generates SO when the sales quote sent to the customer is approved.
The generation of SO implies confirmation of sale and no additional charges resulting from increased labor or transportation cost will be included in the document. So once the SO is created, the seller will have to sell the products at the agreed upon price quoted with no further cost to be incurred by the buyer. In case, the sellers wants to make any changes in SO document, it is necessary to take prior consent from the buyer.

  • What will the Sales Order Contain?

After receiving approval of sales quote from the customer, the seller converts the sales quote into a SO. SO will contain information based on what is present in the final quote. The document will contain information related to products, prices and quantities. It will also include the customer name and address, SO number, Shipping address, Billing address, method of payment as well as the ‘Terms & Conditions’ of the contract. The SO may also contain scheduled delivery date suggesting the final date on which the order will be shipped to the customer. The SO number is a sequentially generated number and primarily used to keep a track of orders.

  • Purpose of a Sales Order

SO is used for internal reference by the sales organization and considered the first step in processing an order. It is an integral part of transaction flow in the revenue cycle. Customer billing is the primary source of revenue, which cannot be done unless the sales department has a copy of SO document. Preparing a SO is important as the customer billing is on the basis of sales order. Upon receiving the sales order, the billing department charges appropriate amount to the customer based on SO. You need to ensure that that the SO is correctly generated so as to avoid any revenue leakage. The sequential sales order number contained in SO documents is also used for conducting an audit of order processing. Financial auditors when reviewing a company’s financial statements often inquire about sales order documents. Working capital loans are also given on the basis of confirmed sales order value of a business. So if you want to apply for such loans, make sure to submit sales order documents.

  • What is a Sales Order Acknowledgement?

It is essentially a written acknowledgement of the order received from the customer and commonly used for marketing purpose. In the sales order acknowledgment, the seller firstly thanks the customer for purchasing products from him. This is followed by giving a recap of products (along with their prices) that have been ordered. Lastly, the seller can also mention any offers or incentives that will appeal to the customers and help to increase order size.

  • What is a Sales Order Management Software?

Sales Management Software

Traditionally SO was written or printed on paper. Nowadays SO in most cases, is computer generated and rarely generated manually. It is usually received by the sales department via fax, email or EDI (electronic data interchange), a standard format to exchange business data between companies’ computer systems.
Sales organizations often use a sales order management software to track and process sales order electronically. It provides an efficient way of creating and fulfilling sales order. It automates order to fulfillment process, which ensures on-time delivery of products and provide better service to the customers. Most of these quoting software systems are web-based and have their own mobile apps which allow sales reps to create SO on the go.
When you use such software tools it becomes much easier to handle SO. Various departments such as billing and sales can easily access SO via electronic means, which in turn helps to streamline the ordering process. Many organizations send SO electronically to the accounting system in order to generate invoices for specified customers.
Sales order generated by the seller is converted to purchase order (PO), which is then sent to the supplier for further processing. The main job of the supplier is to fulfill the order by providing the right products and services as indicated in the purchase order.

  • Is Sales Order Same as an Invoice

Sales Order Same as an InvoiceThe purpose of both the documents (SO and invoice) is different. While a SO confirms a sale, an invoice indicates that the customer is legally bound to pay for the products that have been delivered to him. SO authorizes the products that customer wants to buy from the seller. On the other hand, invoice is the bill for the products that the customer has purchased from the seller.