Quote vs. Invoice: Differences & When to Use Them
June 28, 2023
The biggest difference between a quote vs invoice lies in the legal implications of each document. Aside from enumerating pricing estimates, business quotations also serve as a formal agreement between a client and a business or vendor.
As such, if you mistakenly send an invoice that contains information contradictory to what has been established in your quote, you are positioning your business for a serious dispute. This is just an example of how identifying the correct use and key distinctions between invoices and quotations can make or break your business.
So, how do you avoid such an unacceptable error in your business? Well, that’s what we’ve covered in this article, so let’s dive right in.
- Quotes are not the same as invoices. Invoices are sent to customers to request payment, while quotes inform customers of estimated prices of goods and services they are interested in purchasing.
- A quote provides customers and potential clients with additional information about a business’s products, services, and estimated rates.
- Invoices are issued to request payments from customers in exchange for the goods and services delivered.
- In terms of legal implications of quote vs invoice, a quote represents a signed agreement between the business and the client that is legally binding.
What is a Quote?
In business speak, a quote, or quotation, is a document that breaks down the price of a specific set of services or goods. Sellers prepare quotations upon a customer’s request, with a breakdown of costs based on the customer’s conditions and queries.
Often, a customer is interested in making a purchase but wants to learn more about the services before proceeding with their order.
Businesses of all sizes use quotations because these documents guarantee that both the customer and the company agree on the requested goods and services and the corresponding price list.
Types of Quotes
There are two main types of quotes, namely:
- Product quote. Suppliers produce a product quote, which itemizes the approximated prices for the goods a client purchases. It shows a complete description and quantity of the products.
- Service quote. A service quote serves a similar purpose to that of a product quote. Instead of a list of products, a service quote provides complete information on the work or services and the corresponding price agreed upon by the provider of the service and their customer or client.
How to Finalize a Quote
Quotations must contain the complete details of the products or services exchanged between a supplier and a customer. It must also show the agreement between the two parties regarding the exchange of goods and payment.
The seller or business must see that the services or products listed in the quotation match the client's request and that the estimated costs are listed clearly in the quotation.
In return, the client has to verify that all descriptions in the quotation are true and correct, down to the smallest details. When both the seller and the client agree with the quotation, the client has to affix their signature to denote their approval and finalize the document.
When to Use Quotes
A key indicator of the difference between quotes vs invoices is knowing when it is best to use each document.
Often, a business quotation is needed if the products or services needed do not have a fixed and consistent price.
Check out the following examples for better context:
Marketing agencies cater to clients with varying needs for promoting their businesses. They may seek SEO (Search Engine Optimization), content writing, or social media marketing expertise, among other services.
Some marketing agencies offer pricing packages based on their services. However, it is still ideal to provide potential clients with the choice of getting a quotation that is tailored to their business requirements.
A business consultant’s services range from helping business owners determine hindrances affecting their progress to providing training, strategies, and resources to help business owners overcome the challenges keeping them from attaining their objectives.
Providing quotations and pricing packages to their clients guarantees that consultants charge reasonable rates. You might ask, “How does a consultant quote vs invoice differ?”
Consultants send a quote as a preview of their available services and the amount they charge for each. If the client agrees with the terms and prices described in the quotation, the consultant can proceed with issuing an invoice to request the required payment.
Wholesalers supply products in bulk and typically have vendors as their clientele. A vendor may order an inconsistent number of items depending on their inventory and customer demands.
Issuing quotes for every transaction is essential to tracking supplies and ensuring transparency for all clients purchasing their goods.
Construction firms use quotations to specify the costs of materials, equipment, and labor that go into each project they are working on. When it comes to the costs and labor requirements of construction services, it is crucial to follow the standard rates in the market to meet all client requirements and adhere to existing local, state, and federal regulations.
4 Tips To Prepare Quotes
Here are a couple of helpful tips that you can use the next time you need to prepare a quote for a prospective customer:
1. Collection Information
Interview your prospective clients and take the time to learn about their business, needs, and objectives for inquiring about your services. Use this as an opportunity to explain your services and rates and collect data on the services they seek and their budget limitations to see whether you can meet them halfway, pricing-wise.
2. Provide a Request Form
If your business has a website, add a section or page where interested customers can fill out a request form to get a quotation. Doing so effectively saves time for you and your prospects. Request forms are also handy for filtering and organizing the information collected from potential clients.
3. Verify Details
Check that the form is complete with vital information. New clients must ensure they complete their business name and avoid errors in listing their contact details. More importantly, they must list all of the products or services they want to acquire from your business.
Don’t forget to follow up with your clients and prospects after you have sent them a quotation. Ask your clients if they need any clarifications regarding your quote, and let them know that they can contact you for any additional information they may need.
Benefits of Providing a Quote
Let’s explore the main pros of preparing a quotation for your products and services.
#1. Supports Tailor-Made Services
One of the main benefits of providing a quote is that it highlights tailor-made services for specific client needs. This is ideal for businesses that offer marketing, consulting, or outsourcing services because it lets them tailor their services perfectly to different customer demands.
Consequently, businesses impress their customers and attract more potential new clients.
#2. Creates a Uniform Price Range
Product and service quotes use established market prices as a basis. Customers are assured that your services and products are not overpriced when your pricing packages are consistent and in line with industry standards.
At the same time, you are also setting a reasonable base price so that you don’t end up undercharging clients or compromising your resources and manpower.
Understandably, pricing offers are subject to change, especially while negotiations are taking place between you and your customer. However, it is crucial to ensure that there are no discrepancies in the rates between your quote vs invoice. Otherwise, you may end up facing complaints or, worse, legal action from your customer.
#3. Guarantees Transparency
Creating business quotations based on your range of services and the client’s request addresses any adjustments, disagreements, and clarifications as you negotiate the costs and labor needed to meet your client’s demands.
#4. Lets Customers Explore Your Services
At times, clients request a business quotation to look deeper into the services and products offered by a business. They want to compare and contrast each company’s pricing packages and solutions to see which offer best suits their budget and requirements.
#5. Prevents Non-Payment
Business quotations become legally binding documents once the customer accepts and agrees with the terms and information provided in the quote. As such, you can use your quote in case of legal disputes with your customer.
What is an Invoice?
An invoice is a document prepared by sellers and contains a complete list of the services or goods purchased by a customer, the number of items, and the total amount. Sellers issue invoices upon delivering the products ordered by a customer.
Invoices are created once a business or independent contractor completes the required services for a project or client request.
What Information Goes on an Invoice?
A regular invoice contains the following information:
- Business name and contact information. The name of the seller, business, or contractor offering the services and goods.
- Buyer name and contact information. The name of the customer or buyer who purchased from the business.
- Invoice date and invoice number. The invoice date refers to the date when the invoice was issued. The invoice number is a series of sequential numbers unique to each transaction.
- Payment due date. It is the cut-off date for the customer to complete the payment for their purchase.
- A complete breakdown of the items or services provided. A list of all the goods or services purchased by the customer.
- Quantity and unit price (or hourly rate). Quantity pertains to the number of goods or hours of services requested by the customer. The unit price, or hourly rate, is the rate per item or work hour rendered to complete the request.
- Payment terms. It describes the timeframe given to the customer to settle their payments, including the payment methods accepted by the seller.\
- Taxes and additional charges. This section specifies any taxes and price adjustments applied to the total price.
- Total amount due. It is the amount the customer has to pay or settle before the provided due date.
How Does Invoicing Process Work?
Invoicing involves the following steps:
- Verification. The accounting department verifies that the information and amount indicated on the purchase order match the details on the invoice. Any inconsistencies in the information on any of the documents must be resolved before the invoice is approved.
- Approval. After verifying the details on both the purchase order and the invoice, it is then issued to the customer.
- Payment. Upon receipt of the invoice, the customer must fulfill the required payment on or before the due date indicated in the invoice. Paying the amount due for their purchase indicates that their end of the transaction has been completed.
4 Tips to Consider When Preparing Invoices
Here are four essential tips to keep in mind when creating an invoice:
#1. Create a Professional Header
A professional header is akin to your business’s branding. It includes your business logo and your business name, which are affixed to the topmost part of your invoice. Professional headers in your invoice enable customers to recognize your invoices at first glance and solidify your business as legitimate and trustworthy.
#2. Assign Unique Invoice Numbers
Unique invoice numbers make it easier to track customer payments and organize your accounting records later on. Invoice numbers are also crucial in keeping you from mixing up customers’ orders and payments or committing errors in updating your inventory.
#3. Ensure Complete and Accurate Information
Your invoice must contain complete and accurate information, from your business and customers’ names and contact information to the items, quantity, and unit price listed to the total amount and applicable taxes.
Any discrepancy in your invoice renders it invalid and therefore relinquishes you of your right to charge payments from your customers. It may even potentially lead to disputes if not resolved or clarified immediately.
#4. Use an Invoice Generator
Invoice generators are practical and easy to use, regardless of whether you run a small business or a pretty decent and steadily growing enterprise. With an invoice generator, you can choose a template that suits your business and create as many invoices in a short span of time as you want.
Benefits of Using Invoices
Using invoices lets your business reap the following advantages:
#1. Signals a legitimate business
Invoices are a telltale sign that a business or seller operates within lawful boundaries. Even more so if your invoice bears your business logo clearly and legibly.
#2. Protects your business
Between a quote vs invoice, the former has more legal weight. But that does not mean that an invoice cannot be instrumental in protecting your business from potential losses.
Scammers and bogus buyers are rampant these days. Creating invoices for every customer purchase provides solid proof that an order or purchase is yet to be fulfilled.
#3. Helps track your sales and inventory
Remember the invoice numbers we mentioned earlier? Well, invoice numbers shorten the time it takes for you to monitor each purchase and update your financial records accordingly.
#4. Effectively secures payments
When you issue an invoice to a customer, this means that they have formally sent a request to obtain your products and services. In return, you oblige and send an invoice to inform your customer of their obligation to pay in exchange for acquiring goods and services from your business.
Quote vs. Invoice: What Are the Differences?
Take note of these key details so you can correctly differentiate a quote vs invoice:
- Quotations are issued before the goods are delivered. Or rather, before the services are completed. Meanwhile, invoices are issued after the goods or services are received by the customer.
- Invoices are used to request payment from customers. Quotes are created to estimate and specify prices for prospective customers based on their requirements. You cannot interchange the order in which you issue a quote vs invoice to a customer. Quotations will always precede an invoice.
- Quotations are legally binding, while invoices alone are not. A quote must contain estimates that are true to your business’s pricing. Your customers must also be well-informed of the purpose of the quotation and acknowledge the details enumerated in your quote.
It can be confusing and tricky to figure out the distinctions between a quote vs invoice, particularly if you are a new business in the market.
A quotation is like a customer’s prequel to your products and services. It sets the standard and framework for why customers should give your services a try.
If a customer is happy with the pricing or estimate, then they will approve of the quotation and consequently give the go-ahead for the commencement of a new transaction. In contrast, a customer may not accept the quotation, creating the need to discuss and negotiate your prices.
It is also worth noting that differentiating a quote vs invoice vs receipt is a must to avoid issuing the wrong document type and creating confusion for your customers.
Quote vs Invoice FAQ
#1. Is a quote the same as a receipt?
A quote is not the same as a receipt. Quotes are sent before a transaction or delivery of goods is completed, while a receipt is provided as an acknowledgement that the seller has received payment from the customer.
#2. What’s the difference between an invoice and a receipt?
A seller issues an invoice to request payment from their customers. A receipt is created upon receiving the payment indicated in the invoice.
#3. Can quotes be used as invoices?
When talking about a quote vs an invoice, each pertains to business documents that serve different purposes.
That said, quotes cannot be used as invoices because a quote provides customers with the estimated prices of the goods they want. An invoice informs customers of the amount they must pay in exchange for receiving goods or services from a business.
#4. Is quote a payment?
Quotes are not payments. Rather, these are documents you create to give customers an idea of the costs of your services and goods.
#5. Should I send a quote or an invoice?
Here is a simple explanation to help you determine whether to send a quote vs invoice: You should send a quote if a customer or potential client requests an estimated price range for your services. Send an invoice if you have fulfilled the services or delivered the products purchased by your customer to secure the necessary payment.
#6. What is the difference between a pro forma invoice and a quote?
A pro forma invoice is akin to a tentative invoice sent to a customer who is obliged to purchase goods from a business. A quote is necessary to provide complete, accurate, and final pricing details on estimates, as it helps in the customer’s decision-making process.