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Before diving into a sale, businesses often use quotes or proforma invoices to set expectations. While they may seem similar, each plays a unique role in the transaction process. In this blog post, you will learn about the difference between quotation and proforma invoice, helping you understand when and how to use each effectively.
Though a quote and a proforma invoice are the two preliminary documents sent before issuing an invoice, they both serve two different purposes. When engaging in transactions, whether as a buyer or seller, it is crucial to understand the actual purpose of these two documents.
This blog will shed light on the difference between quotation and proforma invoice, two commonly used financial documents in business transactions. By the end of this read, you’ll have a comprehensive understanding of when, why, and how to use quotes and proforma invoices effectively, ensuring smoother negotiations and transactions.
Let’s get started.
Key Takeaways:
- Businesses use quotes and proforma invoices to provide cost estimates to customers. They informally use quotes to initiate discussions, while they send proforma invoices after agreeing on terms to confirm the transaction details formally.
- Quotes support decision-making and negotiation, while proforma invoices offer a clear commitment from the seller.
- Knowing when to send a quote or proforma invoice helps businesses maintain clarity and smooth communication, setting the foundation for successful transactions.
A quote, short for quotation, is a preliminary document a seller provides to a potential buyer. It serves as an initial estimate of the cost of goods or services and outlines the terms and conditions under which the transaction may occur.
Essentially, a quote is the first step in initiating a discussion between parties, offering a snapshot of pricing, product details, quantities, and relevant terms. Unlike more formal documents, a quote is often flexible and subject to revision during negotiations.
Think of it as a detailed “price tag” tailored to a specific job or request. It helps customers understand how much they can expect to pay before committing to anything.
Why Do Businesses Issue Quotes?
Businesses issue quotes when a customer asks, “How much will this cost?” but the answer depends on the details.
For example, if someone wants a website built, a house painted, or 500 custom mugs printed, the business needs to understand the scope of the job before giving a price. Once they have the info, they’ll send a quote so the customer can decide if they want to proceed.
What’s Included in a Quote?
A well-prepared quote usually includes:
- Price – The estimated cost for the requested products or services.
- Scope of Work – What is being offered (and sometimes what’s not included).
- Validity Period – How long the price is reasonable for (e.g., “Valid for 30 days”).
- Terms & Conditions – Payment terms, delivery timelines, cancellation policies, etc.
Is a Quote Legally Binding?
This is where it starts to get a bit complex, but it’s really important to know.
A quote isn’t necessarily a legally binding document. Generally, it’s considered an offer instead of a contract. It’s only when the customer agrees to the quote, and both parties decide to move forward that it can turn into a legally binding agreement—mainly if a contract or invoice follows.
A proforma invoice is a quote in an invoice format that provides a comprehensive description of a potential transaction. Buyers sometimes refer to it as a proforma quote and request it to apply for an import license or to contract for pre-shipment inspection.
It is kind of like a preview or a “practice invoice.” It’s a document that shows a customer what the final invoice will probably look like—but it’s not the real deal just yet. It gives a detailed cost breakdown, but it’s not a demand for payment.
A proforma invoice includes not only the cost of goods or services but also outlines the terms of the sale, such as payment details, shipping information, and any applicable taxes or duties.
Unlike a quote, a seller issues a proforma invoice as a commitment to sell, offering a more concrete representation of the forthcoming transaction.
What’s Included in a Proforma Invoice?
A good proforma invoice will usually include:
- Estimated Costs – The total amount due, including product prices, shipping, handling, etc.
- Descriptions of Goods or Services – What’s being sold, in detail.
- Terms & Conditions – Payment terms, delivery timeframes, currency used, etc.
- Shipping Info – Destination, method of transport, expected delivery date.
- Taxes and Duties – If known, any applicable sales tax, VAT, or customs duties.
Is It Legally Binding?
A proforma invoice is not a legally binding document. It doesn’t mean a sale has been made or that the buyer is obligated to pay. It’s more of a commitment to provide the goods or services under the listed terms—if the buyer accepts and proceeds.
Also, unlike a commercial invoice (which is used after a sale is confirmed), a proforma invoice is issued before any official transaction takes place. Customs authorities may use it to assess duties, but they won’t treat it as the final word—only the actual invoice matters at that point.
Send a quote at a strategic point in the sales process—ideally when a potential customer shows interest in your product or service.
The primary motivations behind sending a quote are:
- Responding to Customer Inquiry: When a customer expresses interest or inquires about a product or service, the business sends a quote in response to provide the requested information, including pricing and terms.
- Cost Estimation: The business sends a quote to provide a clear and detailed estimate of the cost associated with purchasing goods or services. It helps the potential customer understand the financial aspect of the transaction.
- Facilitating Negotiations: Quotes serve as a starting point for negotiations. They are often flexible, allowing for adjustments to terms and pricing based on further discussions between the buyer and seller.
- Decision-Making Support: For the potential customer, a quote provides essential information for decision-making. It allows them to assess the affordability and value of the offering before committing to a purchase.
Also Read: All-in-One WooCommerce Request a Quote Guide
Issue a proforma invoice once both parties agree on the prices and terms of a transaction. Businesses typically send it after completing negotiations to confirm that no outstanding questions remain about the pricing and conditions of the deal.
However, always confirm the final details with a valid invoice, which is the official document for accounting and payment purposes.
Here are some of the primary purposes of a proforma invoice:
- Terms of Sale: It outlines the terms and conditions of the sale, including payment terms, delivery terms, and any other relevant information. This helps in avoiding misunderstandings between the buyer and the seller.
- Confirmation of Order: It serves as a confirmation of the buyer’s order and the seller’s commitment to delivering the goods or services as per the agreed-upon terms. This can be useful in establishing a formal agreement between the parties involved.
- Funding or Financing: Some buyers may use a proforma invoice when seeking financing or funding for a purchase. It can be presented to banks or financial institutions as proof of a pending transaction.
- Record Keeping: Both buyers and sellers use proforma invoices for record-keeping purposes. It helps maintain a systematic record of potential sales, including the details of the products or services, prices, and other terms.
| Aspect | Quote | Proforma Invoice |
| Purpose | To estimate the price for goods/services | To declare intent to sell under specified terms |
| Timing | At the inquiry or proposal stage | Before shipment or delivery, once details are agreed upon |
| Level of Detail | Often brief, with a focus on price and basic terms | More comprehensive, including full costs, shipping, taxes |
| Binding Nature | Usually not binding; open to negotiation | Semi-formal; can serve as a commitment to sell |
| Use in International Trade | Rarely used in cross-border transactions | Commonly used for customs, duties, and import processes |
In a Manufacturing and Wholesale Trade
- Quote Usage: A manufacturer receives an inquiry from a wholesale distributor for a bulk order of a specific product. The manufacturer provides a detailed quote outlining the unit prices, bulk discounts, and shipping terms.
- Proforma Invoice Usage: Once the distributor agrees to the terms in the quote, the manufacturer issues a proforma invoice with comprehensive details, including product specifications, shipping costs, and payment terms. This can be used by the distributor to calculate the estimated cost and raise funds accordingly.
In a Service-Based Business
- Quote Usage: A consulting firm is approached by a potential client for a project. The firm provides a detailed quote to the client, specifying the scope of work, hourly rates, and any additional expenses.
- Proforma Invoice Usage: Once the client approves the quote, the consulting firm issues a proforma invoice, detailing the agreed-upon services, the total project cost, and payment terms.
In Retail Sales
- Quote Usage: A customer shows an interest in a large order of customized products from a retailer. The retailer provides a quote with the prices for each item, any applicable discounts, and estimated delivery costs.
- Proforma Invoice Usage: Upon the customer’s acceptance of the quote, the retailer issues a proforma invoice with detailed descriptions of the products, total costs, and any customization charges.
Not exactly. While both provide cost estimates, a quote is more informal and used earlier in the sales process. A proforma invoice is more formal and typically used once terms are agreed upon, especially in international transactions.
No. A proforma invoice is not a payment request. It’s just an estimate or confirmation of terms. Payment should be made only against a commercial invoice.
– Send a quote when a customer first inquires, and you’re estimating costs.
– Send a proforma invoice once the customer agrees to proceed. You need to confirm the transaction details formally, especially for international sales.
Yes. In many cases, a signed or acknowledged proforma invoice serves as order confirmation, but it still isn’t a final invoice or contract.
No. A proforma invoice is not a payment request. It’s just an estimate or confirmation of terms. Payment should be made only against a commercial invoice.
Not necessarily. For simple or domestic sales, a quote might be enough. In more formal or international transactions, businesses often use both—first, a quote and then a proforma invoice once terms are agreed upon.
Easily manage and automate your pre-sale documents with these powerful WebToffee plugins. Whether you’re sending a flexible quote or a formal proforma invoice, these tools help streamline your WooCommerce workflow and improve customer communication.
# WebToffee WooCommerce Request a Quote Plugin
WebToffee WooCommerce Quotes plugin lets you create a fully functional quotation system on your WooCommerce store. You can add an “Add to Quote” button and hide the price fields and “Add to Cart” button.
Key Features:
- Let customers request quotes directly from your product pages
- Allow buyers to suggest their preferred price for quoted items
- Attach PDF copies of quote documents to WooCommerce order emails using the mPDF add-on
- Protect your quote forms from spam with built-in reCaptcha verification
- Choose which products should show the “Request a Quote” option by including or excluding specific items
# WooCommerce Proforma Invoices Plugin
To create proforma invoices for WooCommerce stores, look no further than the WebToffee WooCommerce Proforma Invoices plugin. With this plugin, you can automatically generate proforma invoices for WooCommerce orders.
Key Features:
- Choose from a variety of templates to create proforma invoices that match your website style
- Set up a separate numbering sequence specifically for proforma invoices
- Automatically attach PDF copies of proforma invoices to WooCommerce order emails sent to customers
Conclusion
Quotes, with their flexibility and openness to negotiation, act as a friendly introduction to potential collaborations. On the other hand, proforma invoices, with their detailed formalization, serve as a trusted companion to seal the deal and navigate the complexities.
Understanding the difference between quotation and proforma invoice is key to using each document at the right transaction stage.
Knowing when to send each document empowers businesses to communicate effectively, establish mutual understanding, and, ultimately, lay the foundation for successful transactions.
