Most SME business owners do not know the difference between a quotation and an invoice despite using the two documents on various occasions. You will often not be able to tell when the two documents are necessary or create an invoice alone. Let us look at both two documents and when to use them.
Quotation – This is a document raised by a vendor to a customer indicating price estimates of various commodities and services. A quotation may have the same totals or differ from the final invoice because you prepare it before the commencement of the work or delivery of goods to the customer. A quote precedes an invoice, and the seller does not adjust inventory through a quotation. Most quotations are valid for a month and are subject to amendments.
Invoice – An invoice is a business document with detailed descriptions of goods and services supplied to a customer. An invoice is simply a request for payment by the supplier. Apart from products and services description, an invoice has the sales dates, the subtotal amount for each line of an item, and the total invoice amount. After creating an invoice, the supplier needs to adjust his inventory. An invoice precedes a receipt; raising an invoice means work is complete awaiting payment, and a payment receipt follows up.
Let us now look at some scenarios where the two business documents are required and the procedure to follow.
When to use a quotation
Let us assume that your warehouse requires some major repair works and upgrading. The first thing that comes to your mind is the cost of the work and any materials that are needed, work to be done, replacements, and their respective costs. You can contact various contractors who will, in turn, visit your premises or inquire from their offices and raise a quotation for the work. After comparing the prices from different contractors from their quotes, you can decide to pick one or negotiate for a lower amount. A contractor who qualifies to get the contract based on his quotation will issue you with an invoice after completing it. Nowadays, the online billing system lets you convert a quote to an invoice in a few steps. The purpose of converting a quote to an invoice is for purposes of filing taxes.
When to raise an invoice
Some people usually call it a sales invoice, and it is sent to the customer once he or she is satisfied with the goods and services from the supplier. A typical invoice usually has the following descriptions. Most shipping companies create an invoice together with a waybill to help track their inventory. Some businesses send an invoice along with a delivery note. A delivery note is for cross-checking the goods dispatched by the supplier against what is received by the customer.
- The invoice numbers
- An invoice dates
- The item price and the total amount due to the supplier
- The due date for payment
- The names of both business transacting
- Tax payable for tax chargeable supplies
- The number of supplies
Let us assume our warehouse repair project will kick off in four phases. There will be an invoice after every stage and payment against the invoice before commencing the next step. After payment of an invoice, the supplier issues a receipt to confirm receipt of payment. Technological advancement currently enables business to reduce paperwork by using an online quotation system to create quotations and using an online billing system to create invoices and online real time banking systems for payment tracking.
Differences between invoice and quotation
- A quotation can be oral or written while an invoice must be a written document
- An invoice has no room for further negotiation, while a quote is subject to alterations because it is negotiable.
- A supplier issues a quote to a customer before supplying goods and providing services. At the same time, an invoice comes after the supply of products and services as a reference document for payment.
- A quotation represents estimates and not the real obligation, while an invoice indicates the actual debt payable.
Similarities between a quote and an invoice
Often the two documents look so similar, but the most common features are;
- Both documents have valid dates and periods
- The two business documents contain transacting business names.
- Both documents contain a description of goods and services.
Always request for quotations from different suppliers and narrow them down to pick the best. Pay when you receive an invoice and ensure it is an electronic invoice for tax chargeable goods. Finally, request a receipt upon payment of an invoice.