Purchase order, Sales order

Purchase order

A purchase order (PO) is a commercial document and first official offer issued by a buyer to a seller indicating types, quantities, and agreed prices for products or services. It is used to control the purchasing of products and services from external suppliers. Purchase orders can be an essential part of enterprise resource planning system orders.

Indent is a purchase order often placed through an agent (indent agent) under specified conditions of sale.

The issue of a purchase order does not itself form a contract. If no prior contract exists, then it is the acceptance of the order by the seller that forms a contract between the buyer and seller.

Companies use purchase orders for several reasons. Purchase orders allow buyers to clearly and explicitly communicate their intentions to sellers. They may also help a purchasing agent to manage incoming orders and pending orders. Sellers are also protected by POs in case of a buyer’s refusal to pay for goods or services.

Details of purchase order

Purchase orders contain the details ranging from products that are ordered to shipping address. Below are details that usually forms part of purchase order:

• Products that are ordered
• Quantities i.e., (kg, meters, numbers etc.,)
• Price at which it is ordered
• Name of the vendor to whom the purchase order is being sent
• Shipment address or delivery location where the goods are required
• Billing address of the company
• Terms and conditions of payment.
• Due date of delivery/consignment

Purchase orders provide benefits in that they streamline the purchasing process to a standard procedure. Commercial lenders or financial institutions may provide financial assistance on the basis of purchase orders. There are various trade finance facilities that almost every financial institution allows business people to use against purchase orders such as:

• Before shipment credit facility
• Post shipment credit facility
• Trade finance facility
• Foreign bill purchase credit facility
• Bill retirement credit facility
• Order confirmation
• Followup

The purpose of purchase orders is to procure materials for direct consumption or for stock, procure services, cover customer requirements using external resources, or procure a material that is needed in plants from an internal source (long-distance intra-plant stock transfers). They may also place once-only procurement transactions and optimize purchasing by taking full advantage of negotiated conditions or for optimal utilisation of existing transport capacities.

Creating a purchase order is typically the first step of the purchase to pay process in an ERP system. Purchase orders may require a SKU code.

Sales order

The sales order, sometimes abbreviated as SO, is an order issued by a business or sole trader to a customer. A sales order may be for products and/or services. Given the wide variety of businesses, this means that the orders can be fulfilled in several ways. Broadly, the fulfillment modes, based on the relationship between the order receipt and production, are as follows:

• Digital copy: Where products are digital and inventory is maintained with a single digital master. Copies are made on demand in real time and instantly delivered to customers.
• Build to stock: Where products are built and stocked in anticipation of demand. Most products for the consumer would fall into this category
• Build to order: Where products are built based on orders received. This is most prevalent for custom parts where the designs are known beforehand.
• Configure-to-order: Where products are configured or assembled to meet unique customer requirements, e.g. computers
• Engineer to order: Where some amount of product design work is done after receiving the order

A sales order is an internal document of the company, meaning it is generated by the company itself. A sales order should record the customer’s originating purchase order which is an external document. Rather than using the customer’s purchase order document, an internal sales order form allows the internal audit control of completeness to be monitored.

A sequential sales order number may be used by the company for its sales order documents. The customer’s PO is the originating document which triggers the creation of the sales order. A sales order, being an internal document, can therefore contain many customers purchase orders under it. In a manufacturing environment, a sales order can be converted into a work order to show that work is about to begin to manufacture, build or engineer the products the customer wants.

Components of sales order

A sale order usually carries information such as customer’s name, shipping address, transaction date, products ordered, descriptions, units of measure, quantities, prices, taxes, etc. The key details of the sales order are listed below:

• Name and contact information of the company (seller)
• Name and contact information of the customer
• Customer billing information
• Customer shipping information
• Information about product or service
• Price before taxes
• Tax, delivery, and shipping charges
• Total price after taxes
• Terms and conditions
• Signature
• Any other relevant information as needed

Sales order process and procedure:

• The buyer sends a request for a quote from a vendor.
• After receiving the request, the vendor sends back the quote.
• The customer considers the quote reasonable and sends a purchase order.
• The vendor receives the purchase order (PO) and generates a sales order using the details of PO.
• The vendor sends the sales order to the customer to confirm the terms of the sale.
• The vendor assembles and prepares for delivery of goods and services requested.
• The vendor delivers those goods or services as per the order.
• Using the details of the sales order, the vendor generates the invoice and sends it to the customer.
• The customer pays the amount specified on the invoice within the allotted time frame.