When you buy anything for your business, paperwork recording the sale comes with the territory. Whether you're buying raw materials or a company car or selling office furniture in a B2B deal, the paperwork may include a sales agreement, a bill of sale and an invoice. The three documents each serve a different purpose in completing the transaction.
TL;DR (Too Long; Didn't Read)
A sales purchase agreement is a contract to make a sale, spelling out price, quality, quantity, any warranties on the goods and any other necessary terms. The bill of sale comes after the sale finally closes, confirming that ownership of the assets has passed from seller to buyer in return for payment.
The Sale Purchase Agreement
Depending on the type and details of the sale transaction, the sales agreement may go by a different name: purchase agreement, sales contract or retail installment contract. The basic principles remain the same whether it's a used car sale agreement or a sale contract for 10 tons of copper ore. Purchase agreement vs. sales contract is not a workable comparison because they're the same thing.
Whatever the name, the sales agreement is a legally binding contract between a seller and a buyer. The seller contracts to provide something — computer equipment, a pickup truck, land for building a factory — at a set price, and the buyer agrees to make the purchase at the agreed-on price. In an installment contract, the buyer agrees to make regular monthly payments before taking full ownership of the goods.
Reading the Agreement
The purchase agreement or sales contract spells out the relevant terms of the purchase, not just the price and the identity of the parties but also dates, amounts and any warranties or other commitments. It may also include special conditions. A real estate purchase agreement is typically contingent on the buyer finding a mortgage, for instance.
It's important to read through any purchase agreement before you sign it, particularly for any major purchase. If you sign without paying attention to the terms, you may find the deal commits you to something you'd prefer to dismiss.
Bill of Sale vs. Invoice
The sales agreement comes before the sale. The bill of sale and the invoice come when you close the deal.
The invoice is a bill. If, say, you've bought two new refrigerators for your restaurant kitchen on credit, the seller presents you with an invoice. It states how much you owe and says how soon the seller expects the money — for instance, within 30 days.
The bill of sale is more likely used when money changes hands. The seller signs it to confirm that ownership of the goods has passed to the buyer in return for payment. It may include warranties, and in some states, it may need to be notarized, witnessed or both.
The Bill of Sale's Power
If you're thinking about a bill of sale vs. invoice and weighing whether you need both, keep in mind that the bill of sale has a legal weight, and the invoice doesn't.
- It's proof of legal ownership. An invoice comes before the transaction is finished. The buyer hasn't paid yet, so it doesn't have the same effect.
- If you make a purchase you want to claim as a tax deduction, the bill of sale works like a receipt. It's evidence that you spent the money you're claiming as a business write off.
- With some purchases, a bill of sale is a legal requirement even for personal purchases. You'll probably need one if you buy a vehicle, and in some states, it's required if you buy a branded animal, such as a cow or horse.
- LegalNature: The Difference Between a Sales Contract and a Bill of Sale
- Scott Legal: Considering Buying a Business in the United States? What are the Key Elements of a Purchase Sale Agreement for a Business?
- Owners: Purchase and Sale Agreements: 4 Things Buyers And Sellers Should Know
- LegalNature: Frequently Asked Questions
- USLegal: Bill of Sale Law and Legal Definition
- UpCounsel: Is a Bill of Sale a Binding Contract?
Fraser Sherman has written about every aspect of business: how to start one, how to keep one in the black, the best business structure, the details of financial statements. He's also run a couple of small businesses of his own. He lives in Durham NC with his awesome wife and two wonderful dogs. His website is frasersherman.com