The relationship between an Invoice and an Estimate is crucial in the financial and transactional processes of businesses, especially in service-oriented and project-based industries.
1. Purpose:
Estimate: An Estimate (or quote) is a preliminary document provided to a potential client that outlines the expected costs and scope of work for a project or services before any agreement is made. It is used to inform and persuade the client about the potential expenses involved.
Invoice: An Invoice is a formal request for payment issued after the work has been completed or the products delivered. It confirms the final amounts owed based on the agreed terms after the client has accepted the Estimate.
2. Sequence of Use:
The relationship typically follows a sequence where an Estimate is generated first during the pre-sale phase. Once the client approves the Estimate and the work is completed, an Invoice is generated based on the agreed-upon terms in the Estimate.
3. Content:
Estimate: Contains expected costs, itemized details of services/products, and validity timeframes. It may not lock the client into any financial commitment unless formally accepted.
Invoice: Contains finalized costs, itemized details of services/products delivered, payment terms, and due dates. This document serves as the formal request for payment.
4. Conversion:
Once a client accepts an Estimate, it can often be converted into an Invoice within an accounting system. This streamlines the process and maintains a clear financial record for both parties.
5. Documentation:
Both documents serve as important records. The Estimate provides a baseline for what was initially discussed and agreed upon, while the Invoice serves as proof of the transaction and request for payment.