Whether you’re providing a service or products to a customer or you’re the one purchasing them, you need to know the difference between an invoice and a quotation. Both documents detail the cost of whatever it is that’s getting sold or purchased. However, there are several other details that each document includes that make them different from one another.
Knowing the difference between the two is essential for both buyers and sellers. In the case of the buyer, it’ll dictate when and how you make payment. In the case of the seller, it’ll dictate when and how you receive payment.
Indeed, quotes and invoices are an essential part of the traditional buying and selling process, and it’s important to know what information each one should include and when they’re appropriate.
Table of Contents
Invoice Vs Quotation | Detailed Comparison
Here are the top differences you need to know between an invoice and a quotation.
The Purpose
When submitting an important financial document, you must be clear about the purpose of the document in question. In the case of invoices and quotations, it’s all about communicating the cost of a potential service or product that a prospective client is considering buying.
An invoice is a document requesting payment for a service already performed or a product that’s already changed hands.
Thus, the purpose of a quote is to inform the customer exactly what the service or product by the seller includes. And how much it’s expected to cost.
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The Submission Time
The submission timing is central to this discussion, following the document’s purpose.
Since the purpose of a quotation is to tell a client how much something will cost, the seller submits the quote before handing out any goods or rendering any services.
Conversely, an invoice is sent to a customer after a service is performed or goods change hands. Essentially, an invoice is a payment request.
One Is Binding, And The Other Isn’t
Invoice vs quotation? A quote is an offer outlining the details and the sale’s terms, including the price and other important details. Because the seller submits a quote before the customer receives anything, it’s more of an offer to sell goods or services.
Because it’s an offer, a quote is not a binding contract between a buyer and seller—either party can walk away at this point. The aim, however, is for the customer to accept the quote and for sale to progress.
On the other side, an invoice is binding. It outlines the details of a service that’s already been performed or a product that’s already changed hands.
As the quote was approved and the seller agreed to its terms, the buyer is responsible for sticking to the deal and paying the invoice accordingly.
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The Format
Because they have different purposes, the format of invoices and quotes are quite different. A quote is more of an offer, so it’s generally slightly less formal (although not always). It may take the form of a letter, email, WhatsApp message, or verbal discussion outlining the terms of the potential sale, prices, and other important information.
Whereas, an invoice is a formal and binding document. It follows proper protocol and generally appears as a financial document with line item prices, taxes, totals, and other details laid out. Businesses often use a printable invoice template to ensure that all these details are included every time, and there’s no room for errors or misunderstandings.
Changing Inventory
Invoice vs quotation? If you’re looking at the technical side of things, from an accounting perspective, the difference in how invoices and quotes affect your inventory is important.
Let’s consider an example: You’re a distributor of books, and each book costs $10. You currently have 50 books in stock.
Because a quote is an offer that has yet to get into confirmation, it does not affect your inventory. That is, even once you’ve sent the customer your quote of $10 for the book, they still need to decide whether or not they want to go through with the deal. In the interim, your inventory stays at 50.
However, since an invoice is a payment request and gets sent to the customer after they’ve received the product or service, it’s at this point that your inventory does change. In the case of this example, your inventory will change from 50 books to 49.
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FAQs
Can a Quote Change?
Absolutely. A quote details the sale terms. The document's purpose is for the customer to approve it. If the customer doesn’t approve, the quote can go for edition and resubmission for approval, as it's before any sale.
What Happens if There’s a Mistake on an Invoice?
In case of a mistake on an invoice, it cannot get ignored. Thus, the business issues a cancellation invoice with a new invoice number. It will reflect a negative number to balance the mistake and the original invoice details. After this, the business can send a new, correct invoice.
Should a Quote be in Writing?
No, a quote doesn’t have to be a formal, written document. An invoice, however, must be in writing because it’s a formal document and an official request for payment. A quote can also be in the form of a verbal agreement between the buyer and seller.
How Does an Invoice Affect Your Inventory?
Since an invoice gets issued after exchanging goods or services, it acts as a request for payment. A quote doesn’t influence your inventory since it’s merely a proposed sale—it hasn’t occurred yet.
What Details Must An Invoice Include?
An invoice number, the sellers/business’s name, address, and contact details, the buyer/other company’s name and address, a description of the goods/services, the date of the goods provided, the date of the invoice, the amount/s charged, taxes, and the final total owed.
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Conclusion
Thus now you know invoice vs quotation. A quote is not an invoice, and vice versa. Each document fulfills a different purpose and is important in its own right. Knowing when there is a requirement for a quote and invoice is essential for buyers and sellers and can prevent costly mistakes.
Gravit Sinha is the founder of ValidEdge. Ever since he was a kid, he has been a problem fixer and that passion is what inspired him to start and grow this website! 🙂
