Sales Orders why are they important?

October 24, 2012 at 6:34 PMIan Benoliel

Sales orders are fundamental to any inventory and order management system. When a customer sends you a purchase order or clicks buy on your web site your company becomes obligated to fullfill the order. Therefore a sales order should be entered into your system as soon as possible.  

I have seen some companies that instead of entering a customer PO as a sales order, they enter it as an invoice even though they have not yet shipped the product.    This is not advisable for a number of reasons:

1. A sale is not yet made: Generally accepted accounting principles require that you ship the product before you record a sale.   Since you have created an invoice you have incorrectly recognized revenue in your accounting records.

2. You may not have the inventory to ship:  You may have generated the invoice but you make actually be in backorder.  This is especially possible if your system allows you to go into negative inventory (like QuickBooks does).  Now you have an invoice and the only way for you do determine what is in back order and what needs to be ordered from your suppliers is to painstakingly go through each product that shows negative inventory.  Ouch!

So the correct procedure would be to enter a sales order and a minimum the following data should be captured:

  • -Customer's legal name
  • -Billing to address
  • -Shipping Address
  • -Order date
  • -Expected shipping date
  • -Customer PO #
  • -Terms of payment
  • -Each product that was ordered (SKU and Description)
  • -Quantity ordered of each product
  • -Price per for each product
  • -Shipping method

Once a sales order is in the system you can use to answer a variety of questions like:

  • -When do I need to ship products?
  • -Which products do I need to order from my suppliers and how much do I need to order?
  • -Which sales orders do I ship first?

If you are not using an inventory and order management system things are probably slipping through the cracks. Here are some points to consider:

  • -Paper gets lost or destroyed.
  • -Excel needs to be manually updated.
  • -Without a system it's hard to share data within your organization.
  • -You have limited visibility as to open orders, backorders, available inventory and such.

Posted in:


Add comment

  Country flag

  • Comment
  • Preview