People tend to be happiest for most things in life when expectations align with reality — or even exceed them. This principle holds especially true in business transactions, where clear communication is key to maintaining trust between buyers and sellers. But how can businesses ensure that what’s anticipated matches what happens?
One of the most effective ways to bridge this gap is through two crucial sales-related documents: the estimate and the invoice. Understanding the purpose and differences between these records can help both parties avoid confusion, set clear expectations, and foster smoother transactions. In this article, we’ll dive into the details of the estimate vs. invoice, exploring their unique roles, contents, and why they’re essential for successful business dealings.
What is an estimate?
In a business-to-business (B2B) transaction, an estimate is a sales document that provides the potential buyer with advanced insight into the cost and terms — for example, quantity, delivery timelines, service details — of a possible purchase. These records are predominately informative and bear little to no legal burden for the shopper or seller.
What is an invoice?
Conversely, an invoice is a request for payment issued to a buyer after a good or service has been purchased on credit. Along with communicating the sale details, the record will also identify other key factors like payment due dates, potential discounts, and any penalties that might arise from a tardy response. Since the purchased offering has already been delivered, these are legally binding documents that need to be recorded in the accounting ledgers of both parties (as assets or liabilities, accordingly).
To learn more about invoices specifically, check out our other resources:
What’s the difference between invoices and estimates?
With these two document types being remarkably similar, it can sometimes be challenging to determine which traits align with which records. In the table below, we’ve broken down the main differences between estimates and invoices:
| Estimate | Invoice |
What is its purpose? | To help the buyer make an informed purchasing decision | To communicate a debt and expectation of payment |
When is it created? | Before the sale | After the sale and delivery |
Is it legally binding? | No | Yes |
Does it affect your accounting? | No | Yes |
Will the total cost change? | Potentially, depending on negotiations or changes in the scope of work | Not usually, unless discounts, late fees, or interest are accrued |
Does the customer have to accept it? | No | Yes, but they can dispute any inaccuracies |
Do you need to include payment terms? | No, but we highly recommend it | Yes |
Why businesses should offer estimates
1. Avoids confusion
The primary purpose of an estimate is to help buyers make an informed choice. So when it comes time to deliver your offering or to invoice a client for the related cost, there should be no surprises. If there are, you, in turn, shouldn’t be surprised when the relationship sours or you lose that customer permanently.
Instead, all the important information regarding the sale and payment terms should have been communicated well in advance. And an estimate offers a perfect opportunity to make this happen. Of course, given the flexible nature of these documents, specific costs may change throughout the negotiating and planning process. We encourage you to send follow-up estimates covering any alterations until purchase.
2. Provides market research
With each estimate, you gain real-world insight into which of your offerings potential customers are interested in purchasing individually or together. Similarly, you can gauge which pricing conditions are most or least likely to be pursued. If you begin A/B testing, you can better dial in the optimal cost for your offerings.
You can also leverage this information to craft potential product bundles and targeted marketing campaigns that are more likely to convert window shoppers into buyers.
3. Simplifies planning
While not every estimate will convert into a purchase, by mapping out the required resources ahead of time, you can better prepare for your future production efforts. You’ll be in a position to verify that you have sufficient cash flow available for large-scale projects. You can similarly determine if your staff or production schedules will have enough flexibility to cover expectations and requirements.
In the event that you struggle to fulfill the expectations of these estimates, you can negotiate with potential buyers to adjust timelines and reach a satisfactory conclusion for both parties.
4. Encourages increased sales
Having key details ironed out and tentatively agreed upon in advance gives potential buyers much more confidence to proceed with a purchase. At the same time, when you are aware of what a customer is interested in purchasing — and even better why — you’re in a much better position to cross-sell or upsell your products or services to better accommodate their needs.
5. Offers flexibility
For some industries and projects — particularly service-based ones — it can be difficult to fully identify which resources will be required to complete a job ahead of time. Instead, certain challenges may arise that need additional equipment, time, staff, or materials to complete. And given that estimates merely outline potential costs, they can be easily updated or modified to reflect conditions on the ground, keeping your customers well informed.
How to create an invoice vs. an estimate
Continuing the similarity of these two records, their contents also tend to be nearly identical. Obviously, the estimate will often include less precise data and descriptions but will cover many of the same details. Commonly, these records should include:
Estimate | Invoice |
The term “estimate” | The term “invoice” |
Unique estimate number | Unique invoice number |
Estimate date | Invoice date |
Expiration date (if applicable) | Payment due date |
Customer information | Customer information |
Seller information | Seller information |
Estimated product or service details (e.g., volume, timelines) | Delivered product or service details (e.g., volumes, timelines, delivery information) |
Pricing breakdown | Pricing breakdown |
Estimated total cost | Total due |
Payment terms (recommended) | Payment terms (required) |
| Payment methods available |
Looking for automated estimate and invoice software? Seamlessly create both with Invoiced’s A/R solution
If you’re still drafting these documents by hand or simply looking to improve the efficiency and accuracy of your sales and billing processes, now is the perfect time to make a change. Our Accounts Receivable Automation software will provide you with the most cost-effective solution for your estimating and invoicing efforts — all while empowering your accounting staff to bolster customer relationships and drive smoother purchases.
By leveraging our solution, you can:
- Enter data once: Leverage the same customer information and solution details you used to create the initial estimate for the final invoice. No further effort is required. That is unless you need to modify any product or pricing totals to reflect project creep. And if you’ve loaded any offering catalogs or product bundles into our software already, you can pull that information directly into these records.
- Offset risk: With our software, you can easily add a deposit request to your outgoing estimates. And if the customer agrees to the purchase, they’ll be directed to our self-service payment portal. Even better, once these payment details have been entered, the buyer can use their established profile to streamline their final purchase.
- Simplify transactions: By taking advantage of our integrated messaging platform, you can offer potential customers the ability to approve the proposed deal at the push of a button. Similarly, with a simple command from our dashboard, you can convert that existing estimate into a final invoice — an invoice with an integrated link to our payment portal.
- Document everything: By communicating your estimates, approvals, invoices, and payments through our software, you create a time-stamped paper trail for the entire transaction. Not only can this help with internal auditing and verification efforts, but it can also prove invaluable if any questions or purchase disputes arise.
Invoiced can help throughout the entire sales cycle
Whether you’re entering initial negotiations with a customer or closing out a sale, our Accounts Receivable Automation software can deliver a suite of features and functions to make your life easier. Beyond streamlining and centralizing your workflows, our solution offers an integrated A/R inbox that can automate your standard communications and your dunning efforts.
Our comprehensive integration capabilities empower you to seamlessly pull relevant data from your existing enterprise resource planning (ERP) platform or update financial records and reports with little oversight. We’ve even recently updated our solution with global payment capabilities powered by Flywire software, making it easier for you to do business in various currencies. Schedule a demo today to get started.
