Difference Between Sales Order and Invoice

Reading Time: 3 minutes
Reading Time: 3 minutes

Sales order and invoice are an integral part of any business transactions. sales order and invoice are two commercial documents help to identify the buyer’s and seller’s name as well as details of products that are purchased. These are non-negotiable documents that specify a written contract between two parties. Usually these documents are generated manually in small businesses. Many organizations prefer to fax these documents to their customers. However in large companies, the process is often automated using an appropriate software tool.

Sales Order Vs. Invoice

SO confirms the sale and is generated after the sales quote has been accepted. On the other hand, the invoice created from sales order, signifies the amount due for the list of products provided by the seller. It is essentially a bill that the customer has to pay according to seller’s payment terms and conditions. In simple words, while sales order confirms a purchase, an invoice specifies the payment for that purchase. An invoice is usually sent before the products have been delivered to the buyer.

1. Action

Action
While Sales order is the first step in the processing of order, invoice is the last step in the completion of deal. Sales order is issued by the seller only when the buyer has assured of purchasing products. Once the SO has been created, the seller does everything to fulfill the order. This includes searching and packaging the products etc. Whereas customer upon receiving the invoice, has to make payments via different methods such as cash, cheque, DD, credit card, debit card etc., as per their convenience. Also in sales order and invoice ,an invoice is not issued unless SO has been processed.

2. Purpose

SO is an internal document and commonly used by sellers to keep a track of their orders. On the other hand, invoice from the buyer’s perspective, represents a valid proof of their business expenses. During a tax audit, invoices are often reviewed to verify for tax return claims. Tax auditors often want to see invoices to check whether appropriate tax has been applied and paid to the state.

3. Document Record

Document RecordSince an invoice represents a financial transaction, it is always recorded in account books. Invoices are important to keep accounting books accurate and up to date. In case of SO, being an internal document, it is never included in Accounts.

4. Document Date

`The date on SO suggests the date the processing of the order has started. To be more specific, it indicates the date on which the customer’s request has been processed. On the other hand, invoice date suggests the date on which products and services have been billed and not necessarily the date the products were delivered. Invoice data also provides crucial formation about the due date of the bill. Generally the due date is 30 days after the invoice date.

5. Transaction Flow

When the buyer displays intent of purchasing products, a quote is prepared by the seller and sent to the buyer. Upon receiving the approval of the quote, the seller converts the quote into Sales Order. The seller then creates an invoice and sends it to the customer. After the invoice is paid, the seller packages the products and ships them to the buyer. However, many times customer receive invoices only after the products have been delivered.

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