Getting paid shouldn’t be a guessing game. Yet many small business owners struggle with the basics—when to send a price quote versus an invoice, what to include, and how to ensure timely payment. These two documents form the backbone of healthy cash flow. Understanding when and how to use each of these two documents can mean the difference between chasing payments and building strong client relationships.
Learn more about the key differences between the two documents and how you can use them to streamline your business transactions from the initial stages to final payment.
What is a quote?
A quote, also known as a service quote, is a formal document provided by a business to a prospective client. It shows the estimated cost of goods or services before any work begins. As a non-binding offer, it helps the client understand the total cost of a project and sets expectations early in the relationship.
Creating a written quote for your services is standard practice, and it provides a clear record with no room for ambiguity. When a client accepts and signs it, it can become a legally binding document, similar to a business contract.
A professional quote typically includes detailed breakdowns and descriptions of the services requested, labor costs, and any other expenses you may incur. For complex projects, businesses may issue a fixed price quote, which guarantees the price unless the services provided or project scope change significantly. To avoid confusion, each quote should have a unique reference number and a validity period, such as “valid for 30 days.”
What is an invoice?
An invoice is an official financial document that requests payment for services rendered or products delivered. It marks the final step in the sales cycle and plays a central role in accurate bookkeeping. Invoices serve as records of revenue, as well as paper trails for tax reporting and legal records in case of payment disputes.
An invoice is not a contract. To be valid, an invoice must include key details, many of which are outlined by legal requirements:
- A unique invoice number
- Your business and client contact details
- The date of the invoice
- The due date for payment
It must also contain an itemized list of the services provided and the cost. Together, these elements create a clear and professional record of the transaction and establish a formal payment request for the final costs owed.
Invoice vs. quote
While both quotes and invoices outline costs, they serve different purposes at opposite ends of the sales cycle. A quote gets you and the client on the same page about potential costs before work begins, while the invoice finalizes payment after the work is done. Formal quotes are generally non-binding until a customer accepts them, whereas invoices act as official records of what’s owed.
| Feature | Quote | Invoice |
| Timing | Before work begins | After work is completed/products delivered |
| Purpose | To estimate costs and define project scope | To request payment |
| Binding | Generally non-binding; may become binding if signed as contract | Enforceable with a valid contract |
| Contents | Estimated prices, service breakdown, validity period, reference number | Itemized costs, invoice number, due date, payment terms |
| Business role | Helps clients evaluate and approve work before committing | Records revenue, supports bookkeeping, required for tax purposes |
How to determine a quote
- Consider the market and your position
- Calculate all costs
- Account for contingencies
- Factor in your profit margin
- Present a professional quote
Setting a quote for your products or services requires balancing profitability with competitiveness. A good practice is to follow a structured approach to help ensure your estimated quotes are fair to the client and sustainable for your business.
1. Consider the market and your position
Before you do any calculations, you need to understand where your business fits into the market. Your pricing must be competitive while also reflecting your brand’s position in the market. For example, premium brands often charge higher prices to signal quality and exclusivity, while budget-friendly businesses set lower prices to compete on value.
Competitor research lets you look at what similar businesses charge for comparable goods or services. This gives you a baseline, and it helps you avoid underpricing or overpricing your work. Pay attention to how others set up their pricing specifics—do they use tiered pricing, a la carte options, or a single fixed price? This may help inform your own strategy.
Next, articulate your value proposition. Ask what makes your product or service stand out. Do you offer superior quality or better customer service? These differentiators increase perceived value and can justify a higher quote. Understanding your unique selling points gives you confidence to price in a way that reflects your work’s true worth.
2. Calculate all costs
A realistic quote must cover every expense. Break down both fixed and variable project costs.
Fixed costs are expenses that stay the same regardless of how many products you sell or projects you complete. This includes software subscriptions, insurance premiums, and recurring marketing fees.
Variable costs are expenses that shift with each product or service. Variable costs include raw materials, packaging, shipping, fees associated with the payment process, and labor costs. In a service business, variable costs might include your time and project-specific materials and resources.
3. Account for contingencies
Projects often come with surprises, and business owners shouldn’t overlook the possibility. Materials might cost more than expected, timelines may stretch, or clients may request additional revisions.
To protect your profit margin, add a small percentage buffer—typically 5% to 20% of the estimated cost based on the risk. For example, you may add 5% for low-risk projects and 15% to 20% for high-risk ones. This allows your business to absorb minor changes without having to send a revised quote and ensures unexpected issues don’t eat into profitability.
4. Factor in your profit margin
Profit is what drives and grows your business. You can calculate a profit margin using one of these approaches, if you haven’t thought yours through already:
The first option is to set a markup. For example, if your costs for a custom project are $100 and you decide on a 100% markup, you would add $100, for a quote of $200. This makes it easier for freelancers and small businesses to set prices quickly.
Price = Costs + (Costs x Markup percentage as a decimal, e.g., 100% = 1)
Price = $100 + ($100 x 1) = $200
Alternatively, you can set a gross profit margin. This method sets profit as a percentage of the final selling price. For example, if you want a 50% profit margin on a project with $100 in costs, your price would be $200. Gross profit margin sets profit as a percentage of the final selling price, a method often used by retailers and large companies tracking profitability targets.
Price = Costs / (1 - Desired margin as a decimal, e.g., 50% = 0.5)
Price = $100 / (1 - 0.5) = $100 / 0.5 = $200
5. Present a professional quote
Once you’ve got your numbers, package them in a professional, branded document. A polished service quote inspires confidence and reassures the potential client that they’re dealing with a reliable business.
At a minimum, include your logo and contact information, a unique reference number, the issue date, a breakdown of costs, and a validity period. These elements provide clarity and prevent potential customers from trying to wiggle out of what you agreed upon.
How to create an invoice
The invoice process should be smooth and professional. A structured approach, potentially using accounting software and templates, ensures accuracy, sets clear expectations, and helps get you paid on time.
1. Gather the details
The foundation of a good invoice is its attention to detail. A valid invoice needs more than just the price. Make sure to include:
- Your branding and contact details (logo, business name, phone number, email, and address)
- Client details (full name, company, billing address, and email)
- A unique invoice number for your records. One good practice is a combination of the date and a customer ID—e.g., 20250828-CUST123)
- A detailed list of products or services, with descriptions, unit quantity, and prices (include taxes, fees, and discounts)
2. Choose invoice type
There are many kinds of invoices, but most businesses need only a few common formats. You don’t have to learn them all, but focus on the types that fit your work. The most useful invoice formats include:
- Standard invoices. The most common type, issued after goods are delivered or services are completed. Standard invoices list the details of the transaction and request payment in full.
- Recurring invoices. Used for subscription services or ongoing retainers, these invoices are sent on a regular basis (e.g., monthly) for repeat charges. They help streamline billing for ongoing client relationships.
- Interim invoices. An interim invoice is a bill sent partway through a project instead of at the very end. It lets you collect partial payments as work progresses. For example, a website design agency might send one invoice for 50% of the cost at project kickoff and another when the work is complete. This approach improves cash flow and reduces risk, since you don’t have to wait for one large payment after months of work.
- Pro forma invoices. This type of invoice is a preliminary bill that states the value of goods, often for customs and documentation. It serves as a placeholder before the official final invoice is issued. A pro forma shows intent to provide goods or services, but is not a legal demand for payment. Unlike a quote, a pro forma invoice is issued after terms are agreed and is mainly used for documentation purposes.
3. Set payment terms
Your invoice must clearly define how and when it should be paid:
- Note exactly how much the customer owes, including taxes, fees, and discounts.
- Clearly state the due date, specifying deadlines (e.g., “Net 30,” meaning payment is due 30 days from the invoice date or “50% upfront” for custom or wholesale orders).
- Outline your late payment policy, if you have one, to encourage prompt payments and help manage your cash flow (e.g., “A late fee of 1.5% will be applied to balances unpaid after 30 days”).
- Make it easier for your customers to pay by listing all the payment methods you accept. Consider including a link connecting clients to a checkout or payment portal that generates receipts.
4. Send promptly
The sooner you send the invoice, the sooner you’ll get paid. Once the work is complete or the goods are ready to ship, you can send an invoice. Prompt invoicing not only keeps cash flow steady but also reinforces professionalism, making it clear that payment is an expected step in the project.
5. Consider automation
Automation saves time and improves cash flow management. Accounting software like QuickBooks, Zoho Books, and Xero can create and send professional invoices in just a few clicks. These tools also track when invoices were delivered, and they issue automatic reminders for overdue payments. Invoice apps, such as Invoice Hero and Shopify: Easy Invoice+, can also help manage your invoicing process.
Invoice vs. quote FAQ
Is a quote the same as an invoice?
No, price quotes and invoices have different functions. A quote is an estimate before work begins, while an invoice is a request for payment after the work is complete.
Can an invoice be used as a quotation?
No, a standard invoice is only for requesting payment. A pro forma invoice, which is a written confirmation of an order, can look like a quote, but it’s used for documentation and not as a proposal.
Does a quote come before an invoice?
Yes. A quote is sent to a potential customer before the scope of the project is finalized and work begins. The invoice is sent after the work is complete to collect the payment.
Do you pay for the invoice or the quotation?
A customer pays the invoice. The quote is an estimate of costs and is not a request for payment.
