Finance glossary

Quote vs. Invoice: What’s the Difference?

Bristol James
5 Min

A quote and an invoice are both essential documents in business transactions, but they serve different purposes. A quote is a preliminary document that provides a detailed estimate of the costs associated with goods or services before any transaction occurs. An invoice, in turn, is a formal request for payment issued after the goods or services have been delivered. It details the final amounts owed, including any applicable taxes, payment terms, and due dates.

What Is a Quote?

A quote, also known as a quotation, is a document issued by a seller to a prospective buyer, providing a detailed estimate of costs for goods or services before a purchase is made. It serves as an offer and is used to outline the terms and potential costs involved in a transaction.

Suppose your company is considering purchasing 100 units of a specialized software package. The software vendor provides you with a quote outlining the cost per unit, any volume discounts, payment terms, and delivery timeframes. This quote allows you to evaluate whether to proceed with the purchase based on the estimated costs and terms.

What Should a Quote Include

These are the basic elements of a quote:

  • Description of goods/services: Clear and detailed information about what is being offered, including specifications or features.
  • Estimated cost: The proposed price for the goods or services, which may include itemized costs, bulk discounts, or special pricing.
  • Terms and conditions: Payment terms (e.g., payment due on delivery, net 30 days), delivery conditions (e.g., delivery schedule, shipping costs), and any applicable warranties or guarantees.
  • Validity period: The timeframe during which the quoted price is valid, often ranging from 30 to 90 days. This helps manage price fluctuations and ensures that the offer remains current.

When Are Quotes Used?

Quotes are typically provided before a formal purchase agreement is made. They are used in situations where:

  • A buyer is comparing different suppliers or vendors.
  • A detailed understanding of potential costs is needed before proceeding with a purchase.
  • The buyer is requesting bids or proposals for large or custom orders.

Types of Quotes

There are two main types of quotes:

  • Fixed Quote: Offers a firm price that will not change regardless of changes in costs or other conditions. Useful for transactions where costs are well-known and stable.
  • Flexible Quote: Provides an estimated price that may vary depending on factors such as changes in material costs, labor rates, or other variables. Often used in situations where costs are subject to fluctuation.

What Is an Invoice?

An invoice is a formal document issued by a seller to a buyer after goods or services have been delivered. It requests payment for the completed transaction and serves as a record of the sale.

Let’s circle back to our example: After delivering the 100 units of specialized software, the vendor sends you an invoice. The invoice details the total amount due, including software costs, any applicable taxes, and payment terms. You then use the invoice to process payments and update your financial records.

What Should an Invoice Include?

These are the basic elements of an invoice:

  • Invoice number: A unique number assigned to the invoice for tracking and reference purposes.
  • Description of goods/services: Detailed information about the items or services provided, similar to the quote but reflecting the final delivered goods or services.
  • Total amount due: The final amount payable, which includes the cost of the goods or services, any applicable taxes (e.g., VAT or GST), and additional charges (e.g., shipping fees).
  • Payment terms: Conditions for payment, including the due date (e.g., within 30 days of receipt) and acceptable payment methods (e.g., bank transfer, credit card).
  • Billing information: Contact details for both the seller and buyer, including addresses, phone numbers, and email addresses, to facilitate communication and payment.

When Are Invoices Used? 

Invoices are issued after the delivery of goods or completion of services and are used to:

  • Request payment from the buyer based on the agreed-upon terms.
  • Serve as a formal record of the transaction for accounting and financial management.
  • Facilitate accounts receivable processes and cash flow management.

What’s the Difference between Quote and Invoice?

While both are essential documents in the sales process, quotes and invoices serve different purposes and are used at different stages of the transaction. Let’s delve into their specific differences:

 

Quote Invoice
Purpose A quote is an estimate provided to a potential buyer before a transaction is completed. It outlines the proposed costs and terms of the goods or services being offered, allowing the buyer to make an informed decision about whether to proceed. An invoice is a formal request for payment issued after the goods or services have been delivered. It serves as a record of the transaction and specifies the amount due for payment.
Timing Issued prior to the sale, often during the negotiation or decision-making phase. It provides a preliminary cost estimate and terms before any commitment is made. Issued after the transaction has been completed, reflecting the final amount due for the delivered goods or services.
Content Includes a detailed breakdown of costs, estimated pricing, terms and conditions, and validity period. It may also outline potential discounts or special offers. Contains the final amount payable, including itemized costs, taxes, and additional charges. It also includes payment terms, due dates, and billing information.
Function Used to negotiate and agree upon terms before a sale. It helps buyers compare different options and decide whether to accept the offer. Used to request payment and document the sale. It facilitates the payment process and financial record-keeping for both the buyer and seller.
Flexibility May be flexible and subject to change based on negotiation, market conditions, or additional requirements. It’s an offer rather than a binding agreement. Represents a binding request for payment based on the agreed-upon terms of the sale. Once issued, it reflects the final, agreed-upon costs and is usually not subject to change.

Understanding these differences helps ensure clarity and proper handling of financial documents, facilitating smooth transactions and accurate financial management.

Best Practices for Invoices and Quotes

To ensure clarity and professionalism in business transactions, it’s important to follow best practices for creating and managing quotes and invoices:

  • Accuracy: Double-check all details, including prices, quantities, and terms, to prevent misunderstandings or disputes.
  • Timeliness: Send quotes promptly after a customer inquiry and invoices immediately after the delivery of goods or services to maintain cash flow.
  • Clear terms: Clearly outline payment terms, deadlines, and any discounts or penalties to avoid confusion.
  • Professional format: Use a consistent and professional format for both quotes and invoices, including your company’s branding and contact information.
  • Follow-up: Regularly follow up on outstanding quotes and unpaid invoices to keep the sales process moving and ensure timely payment.

By following these best practices, businesses can streamline their operations, reduce errors, and maintain positive relationships with clients.

Summary

  • Quotes estimate costs and terms before a transaction, helping customers decide whether to proceed with a purchase.
  • Invoices are issued after goods or services have been delivered and are a formal payment request.
  • A quote is an estimate issued before a sale; an invoice is a payment request issued after.
  • Quotes are used to negotiate and outline potential costs; invoices confirm the final transaction details.
  • Quotes can be flexible and adjusted during negotiations, while invoices are typically fixed once issued.

 

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