Invoicing and documents
Sales order (SO)
A sales order is an internal document generated by a seller upon receiving a purchase order, confirming the details of the goods or services to be provided to the buyer.
What is Sales order?
When a customer accepts your quotation and sends a purchase order, you create a sales order in your system. This document acts as the seller-side mirror of the buyer's purchase order. It confirms exactly what you have agreed to supply, the agreed prices, and the expected delivery dates. While a quotation is an offer and an invoice is a demand for payment, the sales order sits right in the middle. It is an internal confirmation that triggers your team to pick, pack, and dispatch the items. By issuing this document, you formally acknowledge the customer request and lock in the transaction details before generating a delivery note or a final tax invoice. This step prevents misunderstandings and ensures your inventory is allocated correctly before dispatch.
How Sales order works
The process begins when a customer formally accepts your quotation or submits their own purchase order. You then generate a sales order to record the exact quantities, prices, and delivery terms agreed upon. This document is often sent back to the customer as an order confirmation, giving them a chance to catch any errors before you ship the goods. Internally, your warehouse or fulfilment team uses the sales order to prepare the items for dispatch. Once the goods are ready, the sales order details are converted into a delivery note to accompany the shipment. Finally, after the customer receives the items, you convert the sales order into a final invoice to request payment.
- Receive a purchase order or approved quotation from your customer.
- Generate the sales order to confirm item quantities and agreed prices.
- Send a copy to the buyer as a formal order confirmation.
- Allocate inventory and prepare the goods for dispatch in your warehouse.
- Convert the document into a delivery note when shipping the items.
- Generate the final tax invoice based on the fulfilled order details.
Worked example
Gulf Trading Supplies receives a purchase order for 50 office chairs at $100 each and 10 desks at $300 each. The total value is $8,000. Before shipping, Gulf Trading generates a sales order to confirm the request. The warehouse sees they only have 40 chairs in stock. They update the sales order to reflect a partial shipment of 40 chairs ($4,000) and 10 desks ($3,000), totalling $7,000. They send this updated sales order to the buyer as confirmation. Once approved, they ship the available items and create an invoice for the $7,000 fulfilled value.
Why it matters for your business
Using sales orders protects your business from costly fulfilment errors. If you skip this step and ship goods based purely on a verbal agreement or a rough email, you risk sending the wrong items or charging incorrect prices. This leads to customer disputes, delayed payments, and expensive return shipping. A clear sales order creates a reliable paper trail that aligns your sales team, your warehouse, and your customer. It also helps you manage stock levels effectively by reserving items before they are physically shipped. Paper & Pen creates invoices, quotations and receipts, keeping your documentation perfectly organised.
Questions
Common questions
What is the difference between a sales order and a purchase order?
Do I need to issue a sales order for every transaction?
Is a sales order a legally binding contract?
Related terms
- Purchase order A purchase order is a legally binding document issued by a buyer to a supplier, authorising a purchase and detailing the exact items, quantities and agreed prices.
- Quotation A quotation is a formal document given to a potential buyer that offers specific goods or services at a fixed price under defined conditions for a limited time.
- Delivery note A delivery note is a commercial document accompanying a shipment of goods that lists the description and quantity of items enclosed without displaying their financial value.
- Backorder A backorder is a customer request for a product that is currently out of stock but is expected to be replenished and delivered at a later date.
- Proforma invoice A proforma invoice is a preliminary bill sent to buyers in advance of a shipment or service, detailing the estimated costs without creating a legal demand for payment or an accounting receivable.
- Credit note A credit note is a commercial document issued by a seller to a buyer, reducing or cancelling the amount owed on a previously issued invoice due to errors, returns, or damages.