Sales Order vs Invoice| Why It’s Not an Invoice?
24 Dec 2021
Bureaucracy is not the happiest yet unavoidable part of the eCommerce business. If you’re sometimes stuck at your business documents, having difficulties figuring out what is what, don’t worry; you are not the only one.
For a beginner eCommerce business owner, some documents might look very identical. Take sales orders and invoices as an example. And if you’re struggling to understand their fundamental differences, it’s only natural.
So, in this blog post, we address the two questions many eCommerce businesses ask:
- What is a sales order?
- Which are the critical differences in sales order vs. invoice battle?
What is a sales order?
A sales order is a commercial document that helps regulate the relationship between the customer, who places an order, and a business, who should deliver the order.
It’s an internal document that the company issues and keeps record of. It’s mostly popular among retailers, wholesalers, suppliers, and manufacturers.
A sales order is a form that is created by the supplier but is filled in by the customer. It’s used to specify the terms of the order. Those terms include product quantity, quality, and other characteristics, along with the delivery date, price, and further order details.
Those are the details that customers must specify before they confirm their order. In their turn, suppliers confirm the sales order, assuring that they can deliver the product to the customer according to all the details mentioned in the document.
Further, customers use the sales order as a receipt to ensure the delivery meets all the order criteria once the delivery takes place.
What is an invoice?
An invoice, at its core, has the same purpose as a sales order. It also regulates the customer-business relationship, and the business again issues it.
However, in this case, the business requests something from the customer. Invoices notify the customer that the product is delivered or the service is rendered, and it’s time to make a purchase.
There are three main types of invoices.
Pro Forma Invoice
A Pro forma invoice can be considered a “warning invoice,” which is sent more to give a buyer an estimation of what they would pay later, rather than a request to pay.
Usually, exporting companies pro forma invoices. It’s ideal for giving the customer an insight into what the whole project will cost them once completed.
Interim invoices are useful when the project is too large, and the business doesn’t want to wait for months or years until the project is complete to receive a payment. In such cases, interim invoices help to receive partial payments during the project rather than receiving all the payments at the end.
If there are no intermediate payments, companies use a final invoice at the end of the project. In this case, the product is finally delivered, or the service is rendered.
Therefore, a final invoice is an official claim for the payment. Once received, a buyer should organize the payment.
Sales order vs. Invoice main differences
As already discussed, the critical difference between the two is that sales orders require a business to take any action, while an invoice requires that a buyer takes action.
Besides those two, we believe you should consider a few other key differences.
Purpose and tracking
Invoice usually is more important document from the accounting perspective. It’s proof of financial transactions and helps track business expenses accurately. Invoice is recorded in the company’s general ledger and is used by auditors to ensure the appropriate taxing.
On the contrary, companies usually don’t record a sales order anywhere. It’s an internal document and helps businesses to have proper control over their orders.
The business and the customers exchange a sales order before the project steps into processing. So, a sales order is a document that is useful at the beginning of the sales process.
Invoices work oppositely. They are created either at the end of the whole project or at some of its parts.
Before you go
We state above that invoices are more worthy documents to track the flow of the company’s financial resources. However, this does not mean that a sales order is a less critical document, and you shouldn’t focus on it.
Both documents are an essential part of the order fulfillment process. Order processing starts with the sales order and finishes with the invoice.
Therefore, let’s sum up the sales order vs. invoice battle by stating that both are important, each in its place. To ensure proper eCommerce operations, you must keep those two documents in place and under proper control.