Quote vs. Invoice
Business processes are focused on quoting prices to clients, completing the work or delivering products, sending invoices for the completed activity, and being paid by the client. Quoting and invoicing are two very different processes and come at different phases in the life of a project or the sales process.
This post explores the differences between issuing quotes and invoices, when they should be used, and the elements in each. There are also specific times in the sales process when a quote is needed to help complete the sale before the work begins.
What is an Invoice?
Invoices are used to request payment for products or services provided to a client. The invoice should outline in detail the quantities of each product and service provided. It should align with a quote or purchase order received from the client. It indicates in the eyes of the supplier that the work is completed or the products delivered, and payment is due. Interim invoices can also be sent by the supplier based on an agreed payment schedule between the client and the supplier.
What is a Quote?
A quote is a document provided to a client that provides information about the services and products a provider will provide to a client at a specified price and time. The quote is usually very detailed, covering every aspect of the proposal – timeline, scope, quantities, shipping, taxes, and warranty support. A quote is considered a fixed price quotation that will not change unless the scope of the project changes in some manner, i.e., additional products, services, or timeline changes.
They need to be very accurate for the customer and the supplier to ensure that the project is delivered and meets the client’s expectations. Detailed discussions are usually held with the client to ensure that the final quote includes everything they need, and assumptions have been agreed to.
A quotation should be in writing and include the following details:
- Professional Cover letter
- Corporate branding, logo, and address
- Contact information for the company and the salesperson preparing the quote
- Pricing details for materials, labor costs, taxes, and volume discounts
- Detailed listing of products and services included in the quote
- List of options specific to the client and this project
- Requested response date and purchase order
What Is the Difference Between a Quote and an Invoice?
The major differences between a quotation and an invoice are:
- When they are delivered
- Information included
- Next steps by the customer
A quote is provided to a potential client describing the products and services to be provided at a specified price, including taxes, and an approximate timeframe based on when the client approves the quotation or issues a purchase order to the provider.
The invoice includes all of the details of the services and products delivered to the client and the total price, including taxes, with the expectation for the client to pay the provider within a specified number of days.
Both documents will be very close in terms of information; however, the invoice may differ if there are changes to the services or products from what was originally quoted.
Guidelines for Preparing a Quote
The quote delivers a strong impression regarding your company, your professionalism, and your attention to detail. The following are some of the issues to keep in mind while preparing a quote for a client;
- Double and triple check the details – math errors, spelling mistakes, and typos to avoid losing money and looking unprofessional
- If you cannot provide the products and services, do not issue the quote to the customer
- Avoid assumptions; details are always better
- Avoid undercutting prices and services, which can lead to losses on the project, disputes, and hurt your company’s reputation.
- Check and recheck product quotes for quantities, delivery, logistics, pricing, and overhead costs
- Compare service quotes to similar jobs, verify routine tasks and confirm extra costs such as accessories, additional labor, and/or overtime costs to meet deadlines
- Verify the scope of the project with the customer and request customer signoff on the project, perhaps including a deposit before work begins.
- Track scope changes and negotiate changes to the original quote accordingly – plus or minus the number of products or services.
When to Use a Quote?
Customers may verbally request a quote, or they may issue a request for a quote (RFQ) for more detailed requirements. In both cases, your response should be as quick as possible while taking the time to prepare an accurate and fully complete quote. If your response will take a few days, let the customer know of your intentions and when they should expect a response. Customers will wait for your quote to compare it to quotes from other customers if they are aware of your intentions.
There are typically three types of quotes:
- Fixed Pricing – quotes involving products and services with stable pricing, clear fixed deadlines, and stable labor costs. There should be no change in scope and few if any, assumptions. The quote is understood to be an exact cost unless the scope changes.
- Estimates – involve quotes for projects that may be more fluid. Pricing, quantities, timelines, and labor costs may vary. It is understood that the estimate is not a fixed price and can change once the details of the project are finalized.
- Request for Quotation (RFQ) – as mentioned earlier, these are requests issued as documents by the client to multiple suppliers providing details about the project covering scope, timelines, products, and services. The client follows this approach to obtain the best price and the best services. They do not always take the lowest bid, preferring to consider many other aspects requested in the RFQ.
Essential Elements of a Quote
Every quote is different depending on the industry and the products/services that are in play. All quotes should include the following elements:
- Quantities of products and services
- Product specifications
- Logistics, including the timing of delivery, start, and completion dates
- Delivery costs
- Overhead costs, e.g., taxes, optional warranty, and replacement, etc.
- Payment schedules
Tips and Benefits of Preparing Quotes
There are many benefits for both the client and the provider associated with a well-prepared accurate quote.
- Demonstrates professionalism and credibility of the supplier
- Improves customer experience, avoids assumptions, and reduces business, financial and legal risks
- ·Product and service quotes should always be in writing
- Itemize every component of the project, including quantities and prices
- Indicate the need to requote if there are scope changes
- All parties should sign off on the project before starting work
- A quote ensures both parties have the same understanding of the project
- Cash flow planning for the client and supplier is easier
- Non-acceptance of a quote provides feedback on pricing and services offered
- Protects the supplier if the client is unable or unwilling to pay
When to Use an Invoice?
An invoice is used to request payment from a client. It is dated with the current date, includes the client’s name and the supplier’s name, and describes the details of the products or services provided.
The invoice is issued when the work is completed, the products delivered, or based on scheduled payments agreed to by the client. The invoice also states the available accepted methods of payment by the supplier. Invoice issuance should be completed promptly to ensure appropriate cash flow needs of the supplier are met.
Essential Elements of an Invoice
An invoice is a legally binding document that must include specific information about clients, suppliers, and the products or services provided. The following details should be covered in the invoice:
- Client and supplier names, addresses, and contact details
- Invoice date
- A unique supplier reference or supplier code
- Reference number relating to a client purchase order or RFQ
- Quantities and description of products/services delivered
- Date products and services were supplied
- Payment due date
- Payment amount due, including all discounts and taxes
- Payment terms (30 days)
- Late payment terms (penalties for late payment)
- Acceptable payment options, i.e., check electronic transfer, PayPal, etc.
The following are a few of the most common frequently asked questions concerning quotes and invoices:
The quote, once accepted by the customer and a purchase order issued by the customer, can be used as a reference document for preparing invoices. A quote cannot be used as an invoice. The invoice should be based on the actual products and services provided based on the prices quoted and accepted by the customer.
For example, the quote might have been based on 100 widgets at a price of $XX. XX. The invoice will use this information as a baseline; however, if there were 110 widgets supplied, the invoice should reflect this amount and not the quoted product quantity. The supplier should also have a purchase order from the client reflecting the new quantity of 110 widgets.
The invoice is the final document with the exact figure due from the client.
A quote cannot be issued requesting payment. The client’s accounting department will not accept the quote as a demand for payment. They always match purchase orders with invoices to verify they are paying for whatever has been requested. Differences between the PO and the invoice must be explained and approved by management before the invoice can be paid.
The supplier may issue a receipt showing the details of the most recent payment from the client and indicate any differences or money still owed by the client. The receipt confirms to the client that the supplier has received the stated funds from the client.
A quote is not a pro forma invoice. A pro forma invoice declares that the seller will provide products and services at an agreed time and date. It is often sent before the work is completed when a customer has committed to the project/products etc.
A quote provides information about a product/service/project to a client that will help them decide moving forward. Typically, the client will issue a purchase order to the supplier. They may also request a pro form invoice to further confirm quantities and services. The final invoice can differ from the pro forma invoice if the quantities/services/project change and the client has agreed to these changes.
Key Points (Quote vs. Invoice)
Quotes are delivered at the beginning of a potential project, often initiated by a customer request for a quotation. They provide all of the details a client would need to decide product/service specifications, pricing, delivery, logistics, taxes, and other details specific to the client’s needs.
Invoices are sent by the supplier once the products are delivered and the services are completed or based on interim billing as agreed to by the client and the supplier. The invoice is a payment request and provides all of the details the client needs to confirm delivery and completion before paying the invoice. Often the accounting department will match the invoice to a purchase order issued by the client to confirm payment details.
Scope creep an issue that impacts many agreements and projects. Both the client and the supplier must review the scope creep and make decisions to curtail the scope creep or amend the Purchase order to include the added products and services to the agreed project.
Invoices should be sent as soon as the products are delivered or the services have been completed. The supplier will often allow the client 30 days to confirm delivery and complete their payment arrangements. Delays in sending out the invoice impact cash flow for both parties and can make it difficult for the supplier to meet their obligations to employees and suppliers of raw materials.