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Although a quote and an invoice are two separate items, both are documents used to ensure a business gets paid. The big difference between a quote vs. invoice is timing. A quote comes before the work is done, and an invoice comes after. Both documents are critical to the financial success of a business.
Quote vs. Invoice
The main difference between a quote and an invoice is when they are delivered and what information each details. A price quote is issued before the delivery of goods, services, or before a project starts, and details the projected costs. An invoice is issued after the delivery of goods, services or after a project is completed and details all accrued costs.
If you are comparing a quote to an invoice, a lot of the information will be the same. The timing is typically the only thing that differs. Both documents are legally binding with the same agenda—to bring money in the door.
A quote is always given before the work is started. It details how much a job or project will cost and the materials or services involved. An invoice comes after the work is complete, and when payment is due. It also details everything from the quote.
What is a Quote?
A quote (also called quotation, sales quote, price quote) is a document that provides an exact price for a job. This is a fixed price that breaks down the full cost of the project, identifying the timeline, scope, and other details needed to invoice later down the road.
A quote is much more than an estimate. Once a fixed price is quoted, it cannot be changed without a new business agreement. Prior to writing a quote, you’ll need to visit the site and conduct any preliminary testing to ensure accuracy.
Formal quotes are always in writing, and should include the following:
- Accurate pricing for materials, labor costs, taxes, and any applicable discounts
- Company branding and logo
- Company name and contact information
- A professional greeting thanking the customer for their time
- Line items of products/services requested
- Additional options to inform the customer of relevant offerings
Finalizing a Quote
A price quote is not a document you should rush to complete. Double-check it to ensure there are no math errors, spelling mistakes, or typos. Not only does this look unprofessional, but a wrong quantity or amount can also cause you to lose money (since a quote is a legally binding document).
Before finalizing a quote, make sure to follow these rules:
- Never provide a quote if you cannot provide the goods/services
- Do not assume. The more detailed a quote, the better.
- Do not undercut your services. An unmatched quote and invoice will lead to disputes and could harm a company’s reputation.
Before finalizing a quote for a product, check to ensure that you can deliver on:
- Overhead costs
Before finalizing a quote for a service, keep these things in mind:
- The cost of similar jobs
- How long routine tasks take (don’t undercut yourself)
- Extra costs like product accessories and additional labor
Many companies require several quotes for a large job. Although you may be inclined to keep costs down, the cheapest quote is not always the one that is chosen.
Before any work has begun, quotes should also be signed. Depending on the scope, you may also require a deposit (a portion of the total amount). If a deposit is accepted, it should be noted on the quote and a receipt given for auditing purposes.
If the scope of the work grows, consider drawing up a new quote and asking the customer to approve changes. Having this in writing will cover your business in case there are any discrepancies.
When Are Quotes Used?
Once a customer requests a quote, you should have it prepared the same day. Take advantage of the momentum and the client’s desire to get the job done.
Generally, quotes fall into three categories:
Projects that involve variable costs (think labor/products with market-dependent prices) and/or have an unforeseen duration, may require a quote with an estimated price. The expectation is that there may be a variance in either direction, but nothing too significant from the original estimate.
Most estimates are included as part of a broader proposal and typically don’t stand alone for a project. Unlike a formal, written quote, estimates are not legally binding and have no fixed price.
This quote provides prospective buyers with an exact figure for the cost of a project. These usually involve products/services with a relatively stable price, fixed deadline, and well-defined labor costs.
Request for Quotation (RFQ)
An RFQ is a document a company sends to multiple suppliers asking for a quote of their services and/or products. Quotes created in response to an RFQ are unique because they are written in a specific way, outlined by the sender.
A business may provide a template or specific format and tend to request fixed-price quotes. That’s because an RFQ is primarily used to evaluate vendors immediately before a purchase.
Tips for Preparing Quotes
Clear and professional quotes demonstrate credibility. They also provide a better customer experience and help protect a business from legal and financial risks. When preparing a written, formal quote, here are a few tips to keep in mind:
- Always put any price or service quote in writing
- Make sure every component of the project is itemized and priced
- Include a disclaimer that a requote is needed if the scope changes
- Make sure everyone signs off before work is started
Always remember that a quote is a legally binding document and should be treated as such.
What are the Benefits of Providing a Quote?
When providing a quote for potential customers, there is a multitude of benefits to doing it the right way. Here are just a few:
- Avoid additional, unpaid work
- Helps to define the contract value
- Breaks down what’s needed for the job
- Ensures everyone is on the same page
- Allows you to better plan cash flow
- Establishes a minimum base rate for work
- Provides valuable feedback about your pricing
- Protects you when a client fails/refuses to pay
A quote also assures people you are running a reputable business and are willing to put your words in writing.
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What is an Invoice?
An invoice is an itemized list of services rendered or products provided to your customers. It’s a payment demand issued after the sale and gives customers a method to pay for services/products they’re received.
An invoice details what goods were provided, what work has been done, and the total amount due. They can be sent through invoice software in an electronic form or the traditional paper method. Invoices can also be paid in one payment, or installments.
What is an Invoice Used For?
An invoice is a time-stamped, commercial document that is used to itemize and record a transaction. If anything was purchased on credit, the invoice will specify the terms of the deal and provide information on the available methods of payment.
Invoices can be used to bill for recurring work or a one-off project. They are mostly used to request payment and where there is an ongoing relationship with the customer.
What’s Included in an Invoice?
Invoice documents are legally binding and must have specific information. The word “Invoice” should be clearly listed at the top.
When invoicing, you should always include the following information:
- Name, address, and contact details of both parties
- A unique reference number or code
- Description of goods/services delivered
- Date invoice was issued
- Supply date of goods/services
- Amount due (including taxes and pre-agreed discounts)
- Invoice due date (deadline for payment)
Other types of information you may choose to add can be things like:
- Payment terms
- Late payment fees
- Payment options (what you accept)
- Purchase order number
Freelancers and contractors may also choose to put their PayPal, Venmo, or other payment service information on the invoice, for a quicker turnaround.
When are Invoices Used?
A business can only invoice after an order has been fulfilled. The longer you wait to send a final invoice, the more effect it will have on cash flow. This is a situation where documents must be sent on time to not only ensure payment, but customer retention as well.
For a company providing a product, an invoice should be sent after delivery is completed. In a service-based business, an invoice is generated once the service has been rendered.
How Does the Invoice Process Work?
The method of invoicing is the same, whether you work for a small business or front an enterprise.
To break it down simply, in a few steps:
- A customer agrees to purchase goods and/or services.
- Services are rendered, products are sold in-person, or shipped.
- The details of the sale and the parties involved are listed on an invoice.
- The invoice is sent to the customer.
- After receiving the invoice, the customer has a certain period of time to pay you.
- Customer makes the payment in full and the invoice is reconciled.
You may also have customers request another type of sales invoice called a proforma invoice.
What is a Pro Forma Invoice?
While an invoice is a commercial instrument, a pro forma invoice is more of a declaration by the seller to provide products/services at a specified date and time.
A pro forma invoice is usually sent when a customer has committed to a purchase but cannot be sent an actual invoice because the work has not been completed and the final details are not known.
A pro forma invoice differs from a quote. A quote is simply a response to an inquiry about a job, where the customer wants more information to make a decision. When they are requesting a pro forma invoice, it’s usually after the decision has been made and the customer is committed to the job.
Keep in mind, a pro forma invoice may not list the exact final cost of a job, since it’s sent out prior to the work being completed. If anything changes in cost, time, or materials, a final invoice will be the only document to reflect these changes.
Quote to Cash Process
At the beginning of the quotation process, a business has already put in a lot of sales and marketing work to reach that point. From paid advertising to cold calling, sales meetings, and prospecting, the groundwork is laid out. Once the sales department formulates an offer in writing, the quote-to-cash (QTC) process begins.
The QTC process covers all of the end-to-end functions related to the sales activity of a company. It involves all the steps taken to increase a company’s cash flow, which includes (but is not limited to):
- Configuring an offer and drafting quotes for potential customers
- Contract creation, negotiation, and execution
- Order fulfillment and services rendered
- Accounts payable invoicing
- Accounts receivable collection
- Bank reconciliation
Customer nurturing is the final and ongoing step in the QTC process. Without them, you wouldn’t have a system to work with at all.
Just remember, the sales process is never complete until there’s an accepted payment. Then, the entire cycle can be reported and analyzed.
Can a quote be used as an invoice?
You can never issue a quote for payment. A customer’s accounting department cannot accept this as a demand for the work completed.
Although quotes must be accurate, the payment due can increase or decrease depending on the job and changes to the scope (sometimes at the customer’s request). An invoice is a final document with exact figures due.
Is a quote a receipt?
A quote is never a receipt because there’s no work to show for it. A receipt is a written acknowledgment that the product/services have been rendered.
A quote comes prior to any work being planned, performed, or completed. A receipt, on the other hand, comes at the end of a business transaction.
What is the difference between an invoice and a receipt?
An invoice is requesting payment and initiates a transaction. A receipt acknowledges the transaction is complete, after payment has been received. It’s proof of payment.
Are quotes legally binding?
Quotes are always legally binding and should only be used when you are certain of the costs involved. Never label a written estimate as a “quote” unless you can uphold the figure provided.
It’s crucial the customer always understands whether they are getting a written quote or estimate. The difference could seriously cost a business owner if the wrong label is used in writing. Clearly label documents with the appropriate term to avoid confusion.
Quotes are formal contracts. Estimates are not.
The Future of Quotes and Invoices
The quote vs invoice process are two separate systems that depend on each other for positive cash flow. Thankfully, modern technology has found a way to streamline these workflows and get payments in faster.
It all starts with automating manual processes. Almost every aspect of accounting can be digitized for quicker handling. The touchless invoice process is one example of how accounting departments are taking a less “hands-on” approach to ensure transactions are accurate and continuous. Invoices are accepted, scanned, approved, and paid in minutes.
This isn’t a new concept. The Automated Clearing House (ACH) was originally developed when accounting paperwork became more than banks could physically process in a day.
Technology always evolves exponentially, especially in finance. It shouldn’t be a surprise that in a few more years, the entire quote vs invoice process will be 100% touchless.