Learn the basics of sales order processing

The entire order processing workflow is not as easy as everyone thinks. Thus, it requires a complex chain of subprocesses and documents to coordinate and communicate with the departments involved in it. 

One of these is sales order processing. This article tackles the definition of sales order processing, how it works, and its significance in the entire order fulfillment chain.

What is sales order processing

Sales order processing refers to the entire workflow sequence followed to complete a customer’s purchase. After the customer clicks “buy now” on a website or Facebook page, the system triggers a series of communications involving different departments. This includes the warehouse, logistics, and billing.

Nowadays, sales order processing requires technology that enables a business to process a high volume of orders. This helps them to keep up with customer’s expectations of getting their purchases to their doorstep quickly and easily.

To understand how sales order processing works, we should understand the basic documents required in this operation.

What is a sales order

A sales order binds the confirmation of sale between the seller and the customer. The seller produces this document as a part of their records. 

This document indicates the item to be purchased, the total order amount, customer’s payment method, and fulfillment method. Depending on the agreement, an order may be fulfilled through the following methods:

• Digital copy. This involves the production and delivery of digital goods such as software, applications, or service subscriptions.
• Build to stock. Here, the seller creates and stocks items based on its anticipated demand.
• Build to order. Here, meanwhile, the seller creates the item upon receipt of a customer’s order. Usually, customized or personalized items fall on this category.
• Configure to order. Items are assembled to meet the customer’s unique requirements. Computer sets are a good example of this.
• Engineer to order. Here, meanwhile, product design work is done after receipt of order.

Sales order vs purchase order

B2B order processing requires both the sales order and the purchase order. However, the two differ on the purpose, creation, and delivery.

A purchase order is created by the customer to place their order for a product. Upon approval from their part, the seller must receive and approve this to fulfill their order.

A sales order, meanwhile, serves as sales confirmation to the customer. A customer may also receive a copy of this document along with their invoice.

How is it different from an invoice

Both documents are generated by the seller and required for bookkeeping. A sales order may be easily confused with the invoice, but they have distinctions in terms of purpose and timing

An invoice indicates the amount owed or paid and their terms of payment. The seller usually generates an invoice after fulfilling a specific order. 

A sales order, while containing the item amount and terms, focuses more on how they will deliver the product depending on the method agreed upon with the customer. It prompts the vendor to start assembling, packing, and designing a product.

The entire sales order process

• Order creation. First, the seller encodes the products in the system, along with its price and quantity. 
• Allocation. The team will then allocate available free stock to order or reserve the next stock once it becomes available.
• List picking. For build-to-order and configure-to-order items, the fulfillment team picks the required items for assembling or building an item.
• Dispatch. Finally, the logistics provider fulfills the delivery of packed items, along with an invoice. The warehouse also updates the product stock inventory.