Knowing the difference between these two terms is crucial if you want to make sure your business runs smoothly.
That’s why we’ve put together this comparison guide, including invoice and sales order definitions, examples, types of sales orders vs invoices, and tips for creating sales orders and invoices.
Before we start to think about sales order vs invoice, we need to know exactly what we’re talking about.
A sales order comes from a request by a customer looking to make a purchase.
It essentially confirms that a transaction can take place and is used to store information about the sale.
Here’s a breakdown of the essential information you should include when producing a sales order:
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Sales orders have a range of purposes.
Most importantly, a sales order confirms that the seller has the goods—or the ability to provide the services—that the buyer has requested.
By creating a sales order, the seller is showing that they have checked the items that the buyer wants and that they’re certain they can provide them.
As well as this, sales orders are a great way to document the details of every order that customers make.
As they contain information about the customer, as well as details relating to the products that they’ve ordered, they’re used to stay on top of all your different orders and customers.
By enabling your organization to track your sales, customers, and inventory, sales orders let you improve the productivity of your organization—you won’t have to waste time worrying about the status of your orders if you use sales orders effectively.
Sales orders are used as soon as a customer has placed an order.
In most workflows, sales document templates are used to automatically create a sales order that can then be sent to the relevant parties.
Often, the sales order will come after the customer has paid for the products.
Sales orders are also used after the goods have been received by the customer.
That’s because they’re often used as a receipt to ensure the buyer has received exactly what they’ve paid for.
There are four main types of sales orders you’ll come across when buying and selling goods as a business:
Scheduling agreements are sales orders that focus on the practicalities of getting the goods to the customer.
This means that they’re used to specify things such as delivery dates or the quantities of goods.
Scheduling agreements are commonly used to manage production workflows as they give a clear picture of what orders need to be processed and when they need to be processed.
They’re also useful for managing relationships with external delivery companies, as they can be updated when the goods are delivered.
This is a very simple type of sales order—the customer just places the order and pays for it when they collect the order.
As this is a cash sale, the sales order accounts for the sale even though you won’t receive an account receivable.
For small businesses that don’t have the scale to complete and deliver orders themselves, third-party sales are very popular.
This is because this is a method of sales order that allows you to monitor a sale managed by a third-party vendor.
If you’re using a third-party sales order, you’ll complete a sales order as usual as soon as an order is placed.
However, this sales order will then be passed to the third party who assumes full responsibility for ensuring that the sale is completed.
Rush sales orders are used when customers receive the goods or services before the payment is completed.
This is useful for sudden transactions, and they’re a good way of ensuring that you’ll receive payment later, as your accountants can use the sales order to monitor missing payments.
If you’re looking for an example of a sales order, you should simply use PandaDoc’s sales document templates.
These templates can be adapted to accommodate your organization’s unique needs while also ensuring that you can easily include all of the key details that we’ve explained above.
Now that you know what a sales order is, what is an invoice?
Invoices are documents that businesses send to clients when they need to request a payment.
Let’s say that a customer has requested a product—this would create a sales order.
When that sales order has been completed, an invoice should be used to ensure that you receive the payment outline in that sales order.
Invoices are a crucial part of business.
Without them, you’ll have no mechanism to make sure that you receive the payment that you’ve agreed with a customer.
As well as this, invoices are a great way of tracking and monitoring your debts and profits.
By creating an invoice every time you need to request a payment, you’ll have a paper trail that can be used to stay on top of all of your transactions.
If you’re wondering when you use an invoice, you need to consider it the mirror image of a sales order.
While sales orders are used as soon as an order is placed, an invoice should be used as soon as an order is fulfilled.
This means you can receive payment quickly, preventing any issues with your cash flow.
Just like with sales orders, there are a few different types of invoices.
When it’s time to make an invoice, you’ll want to know which specific type of invoice you need to create—so here are the most popular forms of invoices:
Think of a proforma invoice as a live document that is accessible to all parties while a project is being completed.
It allows customers to see what they’ll need to pay and when they’ll need to pay it.
The point of using a proforma invoice is to account for any changes, meaning that it’s popular for complex projects.
Similar to the proforma invoice is the interim invoice. This is when costs are spread out across the project.
Rather than receiving your payment once all of the services have been completed, an interim invoice can be used to request a chunk of your overall payment during the project.
This is by far the most popular invoice.
That’s because it’s an invoice that simply bills a customer once the goods have been delivered or the service has been provided.
It’s called the final invoice because it comes once the project is completed—the customer will know what they’re paying and why they’re paying it.
If you’re wondering how to write an invoice, here are the key details that you’ll need to include:
There are lots of invoice templates that you can use as examples of invoices.
Using these templates is a great way to ensure that you include everything that you need to include in your invoice.
Templates also help you speed up the invoicing process.
| Sales orders | Invoices | |
|---|---|---|
| Uses | A sales order is used internally to track inventory and sales. | Invoices are intended to be used by an external party as they request a payment from a customer. |
| Time | Sales orders are used right at the start of any purchase. | Unless you’re using a proforma invoice or an interim invoice, invoices are only used once a purchase has been fulfilled. |
| Place in the workflow | Sales orders initiate a workflow within your organization. They initiate order fulfillment, and they should be stored to assist inventory assessments. | Invoices largely require an action from the customer, not your company. They come at the end of your workflow—although fulfilled invoices can initiate a new workflow in your accounting department. |
Although there are significant differences between invoices and sales orders, there are also some crucial similarities:
Another key similarity between sales orders and invoices is that the processing of these two documents can benefit from automation.
Here are the main ways in which automation can improve your sales orders and invoices:
When a sales order has been created, automated processes can immediately track and monitor that sales order.
This will ensure that any delays are quickly picked up by sales order automation software and can be swiftly rectified.
Automated matching processes can quickly match the data on an invoice with the data on a sales order.
This will rapidly improve your processing as well as reduce the likelihood of human error.
Entering the details of every invoice manually is a time-consuming task.
Instead, you should use software to automatically scan and approve invoices allowing you to quickly and accurately process invoices.
Seamlessly integrate payment gateways into your documents for efficient, error-free transactions.
Although there are important differences between sales orders vs invoices, they’re both crucial parts of the purchase cycle for your organization.
That means that it’s imperative that you find a way to make the processing of sales orders and invoices as efficient as possible—and that’s where PandaDoc’s payment software comes in.
Including features such as sales order automation, PandaDoc’s payment solution is a great way to automate your sales orders and invoices, reducing your average payment time to two days.
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