Sales Order Processing: Definition and how to optimize it for your business? [2023]

Small Business Growth
10 min
Small business or SME entrepreneur owner processing sales orders in his office.

The sales order process is one of the most important workflows in any business that sells goods.

Your company needs customers to buy its products or use its services. But sales order processing (how you take and fill orders) has caused many businesses to fail. Things that can go wrong include making mistakes, needing more products in stock, and taking too long to get paid.

To sum up, if you do it right, you will save money and make customers happy. If you do it wrong, the opposite will happen.

So what is it, how does it work, and how should your business optimize it?

We walk through and answer all these questions.

What Is Sales Order Processing?

Sales order processing is a business's way of getting a customer's purchase to them. This means that each part of the process on the seller's side, from when they get paid to when the product is made and sent out, has the information it needs to do its job quickly. Today, sales order processing is often helped by technology.

When a customer buys something from a website or over the phone, the company has to communicate with many different departments to ensure the order is filled. Even though this process is complicated and there are a lot of orders, customers expect to get their purchases quickly. Sales order processing makes sure that this happens.

To understand efficient sales order processing, we need to look at the sales order and what it is for. We also need to look at how it relates to other order documents.

What Is a Sales Order?

The sales order is a document that confirms the terms of a transaction between a buyer and seller. The seller creates the order, often in response to a purchase order from the buyer. The sales order includes details about the quantity, price, delivery time frame, and more.

Sales orders vs. purchase orders and invoices

Sales order processing means finding buyers for the product. The phrase ‘sales order’ is different from purchase orders and invoices. Do not get them confused.

Sales order vs. purchase order

A sales order and a purchase order are both requests for products or services. A sales order is when a customer asks for something from a company. A purchase order is when a company asks for something from a supplier.

A sales order is made by the seller, which is your business. It shows that a sale has been made and what goods were sold, how many, how it will be paid for, and when it will be delivered.

A purchase order is a request from the customer to buy something. For example, if a store wants to buy items from a supplier, it would send a purchase order that says what they want to buy and how many. The supplier then creates a sales order with the purchase details and agrees to the price.

Further Reading: Types of purchase orders

Sales order vs. sales invoice

The sales order is like a contract that tells customers what they buy. The invoice is like a bill that says how much the customer owes. The seller makes the sales order at the beginning of the purchase. The seller makes the invoice at the end of the purchase.

The buyer will pay the seller differently depending on what was agreed upon. The buyer could pay before the seller ships the product when they receive it or within a certain amount of days after receiving it (for example, 30 days).

The finance or accounting department needs to track sales orders and invoices. This means they need to ensure that the two records match each other. Some ERP systems use sales orders to track inventory and invoices to track your payment status from the customer.

The invoice is like a receipt. It shows that the customer bought something from the store. The customer may need it to show that they bought something for their job or if there is a problem with the purchased items.

What are the basic steps of sales order processing?

The basic steps of sales order processing are usually:

  1. Receive sales order
  2. Sales order confirmation
  3. Picking and packing
  4. Shipping
  5. Invoicing

Example of a typical sales order process flow

Here we explain the different steps in a standard sales order. This happens from when we receive an order to when we send an invoice.

Step 1: Receive sales order

The first step when you are selling something is to get the order. Customers start their purchase by choosing how they want to buy the product, whether over the phone, online, or through a mobile app.

The sales order should have the following information:

  • What products the customer wants
  • How many of each product do they want
  • Where to ship the products

Shipping details are essential if your company has multiple warehouses or fulfillment centers. They will help you decide which warehouses you send the order to.

Step 2: A sales order confirmation

For some companies, generating a sales order and confirmation is part of Step 1. This means that it is all one process.

To make it easier to sell things, your stock levels need to be accurate and stored in a central database connected to your sales order management system.

When your company has the correct goods in stock, the sales ordering system will automatically create a sales order and send it to the warehouse manager. If your company does not use an automated system, then someone will have to do this by hand, which means that they will receive the purchase order, check if there are enough items in stock, and then create a sales order.

Step 3: Picking and packing

After an order has been raised and confirmed, the warehouse staff must complete the picking and packing phases.

  • Picking: Warehouse workers will get the customer's ordered items. They use barcode readers to scan the items and tell the inventory management system what they picked. Some companies are using robots to do this instead of people.
  • Packing: After orders are picked, they are packed into appropriate containers, sealed, and labeled for shipping.

What if there isn’t enough stock?

If there is not enough product to sell, you will need to order more from one of your suppliers.

This is where an inventory management system can come in handy. This system can automatically create a new purchase order when detecting low stock on hand. This means that the system will contact suppliers to ship more products. The system will also update inventory records showing incoming stock and notify customers.

Step 4: Shipping

The shipping step is sending your product to the customer. You can send it all at once or in parts. Sending it all at once might take longer, but sending it in parts might cost more.

Multiple companies may be involved in this phase. Your business could use a logistics partner to get your goods to a distribution center, from where a courier delivers the goods to your customer. Alternatively, a single freight company could deliver your goods the whole way.

Step 5: Invoicing

If you didn't handle payment when the sale happened, you need to make an invoice so your company can get paid.

There are two ways to do invoices. One way is to print it out on paper and put it in the package when you mail it. The other way is to do it electronically by emailing the customer.

You can use an e-invoice for accounting. This means that the customer can pay you directly from the invoice.

Key Terms and Roles in Sales Order Processing

As we learn about sales order processing, there are some important words and roles you should know:

  • Electronic Data Interchange (EDI): This is a method for computer systems to exchange data in a standardized format. This allows companies to exchange sales orders and other documents without having people type them out.
  • Quotations: A sales quote is a price you give to a potential customer thinking about buying from your business. The sales team is responsible for providing the quote, but the sales processing team also needs to know about it because it might become a purchase order.
  • Pro Forma Invoice: A pro forma invoice is preliminary. The seller sends the customer an invoice before they ship or deliver goods.
  • Stock Allocation: This is the process of locking inventory into a sales order.
  • Sales Returns: A sales return is merchandise a customer has returned primarily due to an error or defect. This will issue a refund to the customer.

Why multichannel sales order management is important

Another trend that has changed sales order processing is people buying things online or on their phones. This is especially true for businesses that sell to consumers. This makes sales order processing more complicated, and we need better solutions.

People can order things in person, over the phone, or online. They can order items using B2B, EDI systems, email, mail, or fax. Moreover, various ways to pick up and return products are also available.

For sellers, this means they are trying to make the customer's experience the same regardless of how they buy. This makes sense because sellers want all buyer interactions to be consistent and logical. However, this trend has sometimes required massive changes for sellers. For example, they might have to add e-commerce solutions to existing processes for physical stores or catalogs. Or they may have to revamp their systems to make them work together better.

To be able to sell products through many channels, sellers have to optimize how they fulfill orders equally for all channels. For example, people who want to order something online might be angry to learn that they could get what they ordered faster if they had called instead. This happens because sometimes companies send orders to different warehouses depending on where the customer lives. This can cause some customers to wait longer for their purchase, depending on how far away they live from the warehouse.

In B2B transactions, this also means that buyers do not want to have to do extra things to be able to talk with sellers. If the buyer usually makes a sales order by doing something internally, they want to spend less time doing it on a seller's website. This means sellers must ensure that their systems can accept orders in any form that buyers want to send them.

If customers can order in more ways, it is more convenient for them. This could lead to more customers and more orders. However, when orders come in many different ways, it is harder to keep track of everything and ensure everything is done correctly. This could cause problems fulfilling customer purchases on time or in the correct order.

What does this mean for my sales order processing system?

If a company wants to ensure its sales processing is running smoothly, it will need to consider using a multichannel or omnichannel strategy.

You will want to use automation for these strategies. That means using a system to help with things like checking how much stock you have, putting information into spreadsheets, making invoices, and more. This will save you time because you won't have to do it all yourself.

When things are automated, they become instant. This means that workers can do other, more critical tasks.

The Benefits of Automated Sales Order Processing

Sales order processing systems help you manage orders from start to finish using one platform. This works for orders from all channels: online, direct sales, and major accounts. Automation offers several key benefits compared to manual sales order processing:

Faster Processing

Automation can help customer service representatives and sales reps by removing paperwork and coordination. This will help them save time so they can do other things. Automation can help reps save up to 95 percent of their time, and companies can reduce the overall time spent on order processing by 90 percent. Thus, automation helps people focus on customer service that needs a human. This makes agents' jobs more interesting, and they can spend more time doing meaningful work. Sales order processing applications help get data from sales orders by email, paper, and fax and put it into your system.

Lower Costs

Saving time also saves money because automating things eliminates a lot of work that people would have to do by hand. This also means businesses get paid more quickly, making more money available. Solution providers estimate that automated sales order processing reduces transaction costs by 80 percent and can produce a positive return on investment in as little as 30 days. 

Fewer Errors

Fewer mistakes will occur if people do less work to process sales orders. This means that customers will be happier and have fewer returns. Automation also means that staff will notice an order even if something goes wrong. Some systems can even figure out information without people having to do it. Intelligent systems can even use keyword detection to prioritize urgent or significant orders. A system only needs to log customer data once because it can subsequently pull information as needed. 

Inventory Management

If you use automated sales order processing, your system immediately sets aside the stock needed to fill an order. Checking inventory worldwide in real-time allows a seller to send orders from the nearest point, which reduces how long it takes to get the product and how much it costs to ship. The system can also find mistakes with products faster, which reduces returns and cancellations. Automated sales order processing also helps the upstream supply chain by allowing better quality control and security. This also allows you to learn more about your suppliers so that you can work together more effectively and have a plan for if something goes wrong.

Further Reading: What is inventory management

Faster Order Fulfillment

Sales order processing automation allows sellers to quickly see the entire sales process. You can track how long it takes to fill an order and measure performance using different data. This way, people who make decisions for the company, like the sales team and managers, have more accurate information to use to make better decisions. For example, they can use this information to ensure enough inventory or to spot problems. Managers can also be more responsive to changes using this automation. Technology also enables sellers to create special discounts for specific customers. This is an excellent way to get an advantage over other sellers. You can more easily change or correct an order with technology and see the order's status in real-time. This shortens the time needed to respond to customer questions.

Further Reading: Pick, Pack and Ship - Making order fulfillment easy

Happier Customers

When you use automation for sales order processing, you get real-time information. This means you can tell customers how their orders are going as they happen. Faster order processing and personalized discounts also make people happier with your service, and many solutions let customers help themselves. Buyers like knowing what is going on. Fewer mistakes mean fewer returns. In short, efficient and responsive order processing makes for a better customer experience overall.

Five ways to optimize the sales order process

1. Look at your current system and see if it works well.

To make your processes better, you need to start with an audit. This means looking at everything closely to see what needs to be improved. If you can't capture the data you need for this, that is the first point you'll need to address.

The first step is to create a flow chart of your current sales order process. You should write down each step involved in the process and then ask yourself some questions about each step. For example: who or what is involved in this step? How long does this step take?

You can figure out which parts of your plan should be shorter or easier. You will work on making these parts better first.

2. Look to automate

Automation is when you use a computer or a system to do a job instead of a person. The computer can do the job faster and more accurately. This lets the staff focus on more critical tasks.

For sales order processing, you could think about automating these actions:

  • Receiving purchase orders and checking inventory levels
  • Raising sales orders if inventory is confirmed
  • Sending purchase orders to suppliers if new stock is required
  • Raising a sales invoice to be printed or emailed to the customer
  • Sending picking requests to the appropriate warehouse manager
  • Updating stock levels based on what items are removed from shelves and scanned
  • Organizing pickups and estimating shipping costs
  • Communicating with the customer at key steps in the process or when there’s a delay

How do you automate these processes?

You will need to use order management software to keep track of everything. This software works with your inventory management system. This way you can keep track of sales, stock, and what you need from suppliers.

These two, in turn, may then plug into a more comprehensive enterprise resource planning (ERP) system to connect with more apps. For example, they might need apps for accounting, sales databases, CMS platforms, etc.

3. Invest in inventory management software

Keeping inventory levels is vital to avoid running out of stock unexpectedly or having too much stock on hand. This is especially important in the first half of the sales order workflow. If you know what you have in inventory at all times and can update this information quickly, you will be less likely to make mistakes that could cost you sales.

Inventory management software can help you track and manage your stock, and even figure out what is making money for your business and what is not.

Further Reading: 5 ways inventory management software can change your business

4. Look into demand forecasting

Demand forecasting uses information about the past to predict how much people will want a product in the future. To do this, we look at how much was sold before, what time of year it is, and what we think will happen. This helps us figure out when people will want particular products and how many they will want.

When you have stock in the right place and the right amount, it is likely that you will run out of stock or order less.

5. Return management and reverse logistics

Even when you have fixed everything in your sales process, there is still one more thing to consider – the part of the process where items are returned.

Reverse logistics is when goods are sent back up the supply chain from customer to supplier or manufacturer. Customer returns are a typical example, but unsold goods, end-of-life goods, returned rentals, and delivery failures may all be reasons for goods to come back up the supply chain.

If your business cannot process returned goods quickly, it may cause the same problems you have already tried to fix. These problems include slow processing, human error, and unhappy customers.

What does sales order processing software do?

Let’s talk about what order management software can do for your business.

This software is a combination of a sales database and order control. This type of software can do the following things:

  • Track sales orders by when people buy things, when you need to deliver them, where they are coming from, and if you have enough stock
  • If you do not have enough stock, generate a purchase order for suppliers
  • Reserve stock for future sales or for specific sales channels
  • Get alerts for overdue orders

Do You Need an Automated Sales Order Processing System?

Before you spend money on new technology, think about whether it is a good idea. Here are some signs that you would benefit from automating sales order processing:

Your Organization Spends Too Much Time Searching for Information

If you cannot always see sales orders from one place, customer service representatives will waste time trying to find out details and the status of the order.

You Print Labels and Invoices and Provide Customer Updates Manually

Because these processes happen often and can be repeated, they're some of the easiest features to automate with a sales order processing system.

Customers Are Getting Wrong or Defective Items and Complaining about Delays and Billing Issues

If you're losing customers because your processes are ineffective and inefficient, it's a sign that you need to change things up. You can't afford to keep losing business because of avoidable mistakes.

Long Order Fulfillment Cycles

If you shorten the cycle then you will get cash more often and it will be more predictable.

Inaccurate inventory reports and can't keep up with demand

Sales order processing can help you keep track of inventory and product demand. Using an automated application also helps improve inventory tracking and the identification of items based on strong or lagging sales.

Sales order processing and optimization software - Brahmin Solutions

Get started on your path to finding an sales order management system with Brahmin Solutions ERP manufacturing software. Manage your sales, manufacturing, and purchasing, all from one platform. And best of all, you can get started for free. Book a demo with Brahmin Solutions and get a 14-day free trial and see why 100's of businesses task us with helping them grow their businesses.

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