For both large and small businesses, quotes and invoices can quickly become an important part of day-to-day operations. Setting your pricing, sending prospective clients or customers a price quote, invoicing, and making sure you get paid on time can help you maintain your cash flow and keep your business running smoothly.
However, it's important to differentiate between a quote and an invoice. Although both can play an important role in your organization's finances, as a business owner, you need to make sure you understand the key differences between these two types of records. We'll explore what separates these two documents and what you need to know about each to help you with your business.
What Is a Quote?
A quote lets a potential customer or client know how much it will cost for you to perform a particular job or service. It's important to note the difference between a quote and an estimate, though. An estimate is subject to change if the job takes longer than expected, you need to buy additional materials, or other situations come into play. However, a quote is unchangeable once the customer or client accepts it.
Given that a quote will tell the customer or client how much the job will cost definitively, you only want to issue it once you have all the details needed. For example, if you'll be doing something in a customer's home, make sure you visit the site and figure out the equipment needed, the materials required, and the labor hours necessary to complete the job. Your quote will tell your prospective customer the total amount due. Once they accept the quote, you agree to complete the job for the amount you proposed.
Sometimes, you might have a customer or client who wants to renegotiate part of the quote before signing. If you agree to the terms, you can issue a new quote, with line items that indicate what you will deliver, for the customer to accept.
Do You Have to Pay for a Quote?
Whether a customer or client has to pay for a quote depends on your services and your business model. In many cases, businesses will choose to provide potential customers or clients with free quotes to draw business.
However, some business owners may find that they need to charge for their quote, particularly if it takes a long time to put together an accurate one. In these situations, you'll want to look at the industry standard. Examine your competitors to see if they charge and, if so, how much. If you charge for quotes while your competitors don't, you might find it more challenging to bring in business.
You might be able to navigate this situation by charging for the quote but agreeing to count this amount toward the total cost. For example, if you charge a customer $100 for the quote and then they select your service, that $100 will go toward the total amount due.
Is a Quote a Receipt?
No, a quote doesn't serve as a receipt. The receipt tells the customer the work performed and the total amount due. The quote is given before the job and lets the customer know how much you will charge for your particular service.
When Are Quotes Used?
Quotes play an important role in business growth across a variety of industries. When customers want to purchase a particular service, they know that different businesses may offer varying prices depending on a range of factors, such as their overhead, experience, and size. Quotes allow customers to see how much different companies will charge for the same job and select the one that fits them best.
Therefore, you want to have a quote system that will let prospective customers or clients know how much they will owe and what they will receive in return from you. You'll often see quotes in situations where people want something built or fixed, such as someone interested in having a kitchen remodeled or having certain enhancements done to a car.
Creative industries, such as someone interested in hiring an artist for a portrait or a florist hired to design bouquets, will also often use quotes. Essentially, quotes play a critical role when something unique is done or created for a customer or client.
What Is an Invoice?
An invoice is given to the customer or client to let them know the total amount they owe you and other important information, such as the payment due date and payment options. For example, if you take credit card payments, debit cards, or checks, you'll generally note these on your invoice.
The payment terms you include on the final invoice will outline what you expect regarding collecting the final cost. For example, if the customer needs to pay within 30 days of receipt or be subject to your predefined late payment policy, you'll note this on your invoice.
Your invoice will contain valuable information, such as an itemized list of the work you did and how much the customer or client owes — including tax, any credits they have (such as if they paid for a service quote), and any discounts for which they qualified. As an example, you might offer a discount for customers who refer new customers to your business. If this customer earned that discount, you would note it on the invoice. You'll also list your company name and contact information, the customer or client's contact information, and a unique invoice number or purchase order number. Numbering your invoices can help you keep track of your accounts and what payments you still need to collect.
The Difference Between an Invoice and an Estimate
It's important to note the central difference between an invoice and an estimate. An estimate tells your customer roughly how much they can expect to pay for a particular project if they hire you. The estimate can change, though, if you have unexpected costs. On the other hand, an invoice is issued at the end of the project and reflects the exact amount that the customer or client owes for the work completed.
When Should You Use Invoices?
You'll want to use invoices to help you carefully track payments owed to your business. A quality invoice system will make it easy to monitor the invoices that you have sent out, which ones customers or clients have paid, and which ones still remain outstanding. With this information, you know which customers or clients you need to reach out to for a follow-up.
An invoice will also help you track your inventory and sales. It provides you with a concrete means of noting what you have sold and when.
Businesses that sell items in person, such as a store, don't usually use invoices, as customers simply pay at the point of purchase. However, with any type of service or product where there is a gap between the time when you provide the service or product and when the customer or client pays the full amount due, you'll want to have an invoice system. This will help you maintain better control over your financial records and ensure you don't miss any necessary payments.
Quotes vs. Invoices
To bring this information together, let's review some of the core differences between a quote and an invoice:
- The quote is given before the work begins and the invoice is given after the work is completed.
- The quote prepares customers or clients for how much they will need to pay.
- The invoice outlines the terms for payment and sets the due date.
- Both documents are binding on customers and businesses, detailing which services will be performed and how much the customer or client will owe.
Is a Quote the Same as a Proforma Invoice?
Many businesses also come across something known as a proforma invoice and want to know how it differs from a standard quote. While neither one is an invoice and doesn't get sent to request payment from the customer or client, they do have some slight differences.
The quote is sent before the customer or client agrees to a particular project. Many customers will request quotes from a few businesses to find one that fits them best. Therefore, while the quote includes your price for the work completed, it won't guarantee acceptance from the customer.
Meanwhile, a proforma invoice provides customers with quote-like information, but the customer has already agreed to do business with you. In other words, the proforma invoice will list out the materials and the services to be performed and their price after the customer has already hired you.
A proforma invoice is common in a few industries, such as trade businesses. They can often help customers with internal approval processes, where the cost of services has to go through several steps before it can be paid. By providing customers with a breakdown of the cost beforehand, they can begin this process before you issue your final invoice.
Easily Create Invoices With Help From Skynova
As you grow your business, staying on top of your accounting will play an important role in your success. The better you understand the important documents involved in collecting payment, the easier it will be for you to navigate the complexities of accounting.
Fortunately, to help you go through this process even faster and more efficiently, Skynova offers an invoice template to help you create professional-looking invoices to send to your customers or clients. We even offer a full range of industry-tailored templates.
See how easy accounting can be for you and your small business with Skynova.
Notice to the Reader
The content within this article is meant to be used as general guidelines regarding sending customers quotes and invoices and may not apply to your specific situation. Always consult with a professional accountant to ensure you're meeting accounting standards.