Invoice vs. Quote: What’s the Difference?

A customer asks you about the cost of 100 GPUs for training AI LLMs. Should you submit a quote or an invoice?

About a month later, you have delivered the GPUs, and need to get paid. Do you submit an invoice or a quote?

Quotes and invoices are two of the most commonly used financial documents for any business or service provider. While some of their components are similar, they serve different purposes and have different use cases.

This article covers the key differences between quotes and invoices, and when to use each format. It also explains how  Docupilot document automation can help create and manage these financial documents in three easy steps.

What Is a Quote?

A quote is a financial document you can use to provide an estimated cost of goods and/or services to an existing or potential customer. It includes a detailed pricing breakdown with quantities, unit prices, subtotals, and the total estimated price of the task or project.

Quotes are often used as the starting point in the procurement process for goods or services. Buyers obtain quotes from multiple vendors and use them as a negotiating tool to drive down prices and secure the best deal.

Depending on the situation and the client's requirements, you can use different types of quotes, including:

• Open-price quotes provide prices that can vary with fluctuating market conditions
• Fixed-price quotes to provide prices that will remain constant regardless of changing market conditions
• Provisional quotes to share prices that can change as customer requirements become clear and well-defined

What Is an Invoice?

An invoice is a financial document used to request payment for goods delivered or services rendered. Invoices are submitted after the delivery is complete and serve as a reminder of the amount due. Due dates, amounts (including taxes), payment terms, and payment modes are critical elements of professional invoices.

You can use different types of invoices, including:

• Standard invoices to request payment for goods and/or services
• Multiple interim invoices to request payment for milestones achieved during a large-scale project
• Recurring invoices to demand monthly/quarterly/annual payment for subscription-based services
• A final invoice at the completion of a project
• Overdue invoices to request payments that are overdue

What Are the Differences Between Quotes vs. Invoices?

Quotes vs. Invoices: What Components Define and Differentiate Them?

Both quotes and invoices are tools businesses use to get paid. A component common to both documents is a detailed list of goods and services and associated pricing. This list is the most important component as it gives businesses a clear idea of the cost of the required products and services.

Other common components include business names and contact details of the seller and buyer, issue dates, and payment terms and conditions.

However, despite these similarities, quotes and invoices have several distinct components that are unique to each format, including:

• Payment methods: Invoices list payment methods (bank transfer, cheque, etc) while quotes typically do not
• Validity period: Quotes have a validity period as pricing can fluctuate due to market dynamics
• Discounts: Invoices can mention discounts offered by the seller, often to motivate the buyer to pay as early as possible
• Due dates: Especially mentioned on invoices to ensure buyers pay on time

When Are Quotes Used?

Quotes are essential for several business use cases.

1. Request for quotation (RFQ)

RFQs are formal requests sent by a business to multiple vendors requesting the submission of price quotes. This is typically the first step in a procurement process, where a company requires a known quantity of items, issues RFQs, receives responses, and decides upon a vendor after comparing the received quotes. Vendors will need to send a quote in response to an RFQ

2. Pricing negotiations

Customers often use quotes to negotiate with vendors to reduce prices. The quoted price serves as a baseline, which the vendor and business can use as a starting point for further discussions. 

To benefit from this, vendors can offer a slightly higher initial price in their quotes, leaving room for customers to ask for discounts, added services, or changes in terms.

Vendors can also use quotes to strengthen their hand; for example, well-structured quotes with relevant details serve as justification for higher costs. Similarly, vendors can offer to reduce prices for bulk orders or in exchange for more extended contracts.

3. Cost comparison and vendor selection

Businesses use quotes for cost comparison and vendor selection. It is a strategic tool to evaluate options, obtain the best value for their investments, and make informed decisions about suppliers and service providers.

Price estimates from multiple vendors or suppliers for the same product or service allow businesses to compare costs and make a wiser choice.

Quotes provide more than just the price; they can include the scope of work, terms, and added services, helping businesses assess the overall value offered by each vendor. Vendors too, can make their quotes more competitive and professional to stand out from the competition.

4. Sales and marketing

Businesses and sales teams often use quotes as a sales and marketing tool: professional, well-designed, and personalized quotes with competitive prices help them get their foot in the proverbial door. And it is not only about pricing – quotes with favorable payment terms can win against quotes with lower prices. For example

• Quote 1 (tougher terms): 100% upfront payment with no credit extension
• Quote 2 (easier terms): 50% upfront payment and 50% upon delivery

Well-prepared quotes can be a key closing tool for sales teams, encouraging customers to make purchasing decisions by presenting compelling offers.

Further, marketing teams can use quotes to create promotional offers, including discounts, special packages, and seasonal pricing, which are then shared with customers.

When Are Invoices Used?

Invoices are used in any business scenario where you need to document and request payment for the goods or services provided.

1. Requesting outstanding payments

The most common use case for invoices is to request outstanding payments for goods and services delivered. Invoices serve as a formal reminder and are needed by customers as justification to start the payment process.

2. Tracking revenue

Each time a business makes a sale, it issues an invoice, which is recorded as revenue in the business’s financial records. This invoicing process helps businesses keep track of the income generated from each transaction, and the total revenue for each financial period (month/quarter/year).

3. Managing accounts receivable

Accounts receivable refers to revenue that is expected but has not been collected. Businesses track invoices by their due dates, gain visibility into how much revenue is outstanding, and can take action to collect it. Armed with this information, businesses can deliver reminders or follow-up with customers for overdue payments.

4. Budgeting and financial planning

By reviewing invoices received in the previous financial year(s), businesses can gain an understanding of how much they have spent on necessary goods and services and how much they have earned. This historical information can help forecast future expenditures for budgeting and financial planning purposes.

5. Tax compliance

Invoices serve as an official record of sales transactions and provide all the necessary details needed for businesses to calculate, report, and pay accurate taxes, which is necessary for tax compliance. They can also used the invoices they have paid to claim tax deductions for certain kinds of expenses.

When Should I Use a Quote vs. Invoice? Explained With an Example

Suppose you are a provider of data analytics services. A Fortune 500 company expresses a desire to benefit from your cutting-edge services. Before placing an order, they need a concrete idea of what your services will cost.

Your sales team burns the midnight oil and creates a stunning proposal, highlighting the superiority of your technological solution, its numerous benefits, and upcoming features.

When the proposal lands on the table of the Fortune 500 company's CEO, they ignore everything, including the snazzy graphics and your beautifully crafted narrative, and jump directly to the page with your quote.

After getting quotes from your competitors and engaging in numerous internal discussions, the CEO makes a decision and places an order with your company, indicating a desire to pay at the end of each quarter.

You process the order, deliver the services, and at the end of the first and subsequent quarters, issue a recurring invoice for services rendered.

Which Teams are Responsible for Creating Quotes and Invoices?

Quotes are part of the sales process and can be issued as individual documents or as part of detailed proposals. Sales teams work to acquire new clients and maintain relationships with existing ones. 

Even though sales teams can coordinate internally with different departments to finalize prices, it is primarily the sales team’s responsibility to create and deliver quotes to potential customers and to existing clients when they raise new requirements.

In comparison, invoices are sent after service/goods delivery. They are part of the recovery process and are created by finance, accounts, or billing teams. In several companies, dedicated account receivable specialists create and issue invoices and follow up to ensure payment.

In smaller companies, the same team will often handle both quotes and invoices, and software like Doupilot can help streamline and optimize financial document creation and delivery.

How Docupilot Streamlines Quotes and Invoices

Managing different documents like quotes and invoices can be challenging for businesses, especially when done manually. They can lead to errors and take away valuable time that could be otherwise spent on revenue generation.

In comparison, digital quotes and invoices offer numerous benefits, including lower costs, reduced probability of human error, and integration with digital systems for search, audit, and documentation.

Docupilot is a cutting-edge platform for financial document automation. It offers a simple three-step process for creating invoices and quotes with just a few clicks.

Step #1: Log in to Docupilot

Log in to Docupilot with your credentials.

Step #2: Create or upload a template

Click the ‘Create Template’ button.

You can use the Online Builder to create a contract template from scratch, upload an existing template in ‘PDF’ or ‘DOCX’ format, or select a template from the Docupilot library.

You can populate your template with static content (text, images, tables, etc.) and dynamic content ( invoice numbers, client addresses, etc.). 

Docupilot uses merge fields for dynamic content (format: {{company_name}}, {{client.name}}). To fill these fields, connect your template to the relevant data source(s). Once satisfied with the content, apply formatting and add branding elements like your business logo and colors.

Step #3: Generate the invoice or quote

Once a template is ready, you can test it by clicking the ‘Test’ button.

Docupilot will render a preview of your template, and after reviewing it you can generate the invoice or quote, deliver it to a client, or store it online.

Docoupilot integrates with

• DocuSign, Eversign, and SignNow for electronic signatures
• Box, Dropbox, and Google Drive for storage
• Zapier for workflow automation
• Check out the full list of 70+ integrations here

The credit-based pricing is simple and affordable, and for each plan, you get access to the full feature set.

Summing Up

Businesses of all sizes create and issue quotes, invoices, and other financial documents on a daily basis. Docupilot is a powerful tool jam-packed with features to help you create and automate financial documents and any other business document you need. 

Sign up today for a 30-day free trial, and experience the power of financial document automation.

FAQs

Can an invoice be used as an estimate?

Usually, no – but there is one type of invoice (i.e. a proforma invoice) that is used by the requesting customer to obtain an estimate of the final costs and other relevant details. A proforma invoice includes payment terms, and its acceptance is a formal indication of the proposed costs and terms, functioning almost like an estimate

Does an invoice have to match the quote?

No, an invoice does not have to match the initial quote, but it must match the terms set out in the final quote and contract. Ideally, for a small project with one final invoice delivered at project completion, the invoice should match the quote. For a large project broken up into multiple milestones, the sum of multiple interim invoices should match the quote for the whole project. However, changing market dynamics and other factors can affect prices, and invoices can differ from quotes (subject to approval by the customer).