Quote, sales order, purchase order, invoice, pro forma invoice and pre-invoice: The wide variety of documents that may be used in the sales process can be overwhelming. They all exist, though, to have a documentation trail you can refer to if you need to know the activity or status of an account. This is especially helpful for products that typically have a lengthy sales process, such as technical equipment or custom-made items.
TL;DR (Too Long; Didn't Read)
A sales order is an agreement between a seller and a buyer to buy and sell something for a specific price, while an invoice is a request for payment.
Knowing Document Order Helps Differentiate
To understand the difference between sales orders and invoices, it helps to also know the difference between the terms sales order vs. purchase order, the order in which these documents are issued and where the quote — if any — comes in.
Sales quote. Purchasers ask sellers for a quote, or estimate, when they aren't sure of a product or service's price. Maybe your website lists a product's price as $59.99, but the customer needs 100 of them and wants to know what type of quantity discount he'll receive for buying so many. You issue a quote that says something like, "1 gizmo @ $59.99; 100 gizmos at $50.00 each, TOTAL $5,000" — add the taxes, fees and shipping and come up with a grand total quote for that amount. Quotes are usually good only for a specific amount of time, such as 10, 30 or 90 days; then the quote expires.
Purchase orders. Many companies use purchase orders (POs) to initiate the purchase of products or services from a vendor at a specific price, or as a result of the sales quote they received. POs are numbered chronologically and are used in order regardless of the type of product or service being ordered. A list is kept of every PO issued so it's easy to find as long as you know the PO number.
Sales orders. Once you receive a PO from a customer, you may either send them the product and then invoice them for it, or you might issue them a sales order (SO) instead. Typically, SOs are issued when the ordered item is out of stock or has to be special ordered, so the actual sale will occur in the future. SOs indicate to the purchaser that you received their order and commit to filling it. SOs are an agreement between the two parties to buy and sell something for a specific price, but they're not a request for payment.
Understanding Sales Order vs. Pro Forma Invoice
When you send a customer an SO as an acknowledgment for their PO at the beginning of the sales process, you're agreeing to fill it at the stated pricing. Unless you require payment upfront for a product, you don't invoice the customer until the end of the process, after the product has been delivered. But you may be wondering about all the different types of invoices you've heard of, the difference between pro forma invoice and invoice, as well as when to send a pre-invoice.
Pre-invoices and pro forma invoices are essentially the same documents by different names; they give your customer a heads up as to what the actual invoice will be when the work is complete. In large jobs, you may send a pro forma invoice to be sure the customer is aware of how much work is being done and what the final cost will be after the work is completed. If work is taking place over a significant period of time, you might negotiate several payments during the process to defray the costs you're spending on the project and send interim invoices for work completed so far.
The good news is that you don't need to use all the documentation that's available. Most customers would be annoyed if you sent every type of invoice you can find. You choose the documents that make the most sense for the way your business works.
Barbara Bean-Mellinger is a freelance writer who lives in the Washington, D.C. area. She has written on business topics for afkinsider.com, smallbusiness.chron.com, Harbor Style Magazine, the Charlotte Sun and more, as well as advertising copy and materials. Barbara holds a B.S. from the University of Pittsburgh and has won numerous awards in B2B and B2C marketing.