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All about Price Quotations in Business

By Annapoorna

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Updated on: Dec 20th, 2021

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2 min read

We live in a world filled with cut-throat competition, where every inquiry is an opportunity. When a customer asks the business for a quote, it means that the products or services offered by that business are of interest to that customer.

What is a Price quotation in business?

A quotation is a bridge that ensures that an inquiry turns into a business transaction. In simple words, a price quotation is a commercial document that lays out for the customer what the fixed cost would be in exchange for the goods or services provided. A quotation will only be valid for a limited period.

Reasons for the use of quotations

The price quotation is the stage at which new business is either gained or lost, depending on how much value for money it projects to the potential customer. Quotations are used in manufacturing and service industries alike and are also highly prevalent in the world of imports and exports. Price quotations help the business in the following ways-

  • Ensures that there is a customised price for the customer for services enquired.
  • Helps in building customer relationships as it helps the business and customers understand each other.
  • Helps the business understand the psychology and behaviour of the customer in terms of pricing.
  • Providing a price quotation provides greater transparency and openness with the customer, thus facilitating a relationship based on trust.
  • Helps the business exercise greater control over the fluctuation of prices.
  • Price quotations also help in enhancing brand image as it portrays a sense of purpose and professionalism.
  • The terms, conditions and pricing of the services offered will be clearly stated, thus enabling the customer to make easier decisions

Importance of Price Quotation under Indian Law

In the context of the Indian Contract Act, understanding the difference between an offer and an invitation to offer is essential. Section 2 (a) of the Indian Contract Act, 1872 states that – 

When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such an act or abstinence, he is said to make a proposal.”

The term “invitation to offer” is not specifically defined as per the Indian Contract Act. However, it is to be noted that an invitation to offer is made to get an offer. Therefore, an invitation to offer doesn’t in itself give rise to any legal consequences. An offer, on the other hand, when accepted, becomes an agreement, which gives rise to legal consequences. 

A mere quotation of price does not constitute an offer. The case law about this is Harvey vs Facey (1893).

Facts of the case-

  • Mr Harvey was running a partnership firm in Jamaica and expressed interest in buying a Bumper Hall Pen plot.
  • The plot of land belonged to Mr Facey.
  • Mr Harvey sends a telegram to Mr Facey saying, to obtain “will you sell us Bumper Hall Pen? Telegraph us the lowest cash price.” Mr Facey responded, saying, “Lowest price, £900”.
  • In response to this, Mr Harvey says, “We agree to buy Bumper Hall Pen for the sum of £900 asked by you. Please send us your title deed so that we may get an early possession.”
  • Mr Facey then declined to sell.

Judgement-

The House of Lords held that the first telegram sent by Mr Harvey was merely an inquiry, not an offer that could be accepted. Therefore, the quotation given by Mr Facey in response to that inquiry did not constitute an offer and thus did not constitute a legal relationship.

Contents of a Price Quotation

Once specified in the quotation, the prices are understood to be what the businessman commits to, as per the ordinary trade practice. Thus, quotations are generally used when-

  • Requirements of work are specified in terms of material, labour, time, etc.
  • Costs are reasonable and stable, not subject to constant fluctuations.
  • The level of work is understood clearly, thus removing any instance for work to be complicated beyond expectation.

The contents of the quotation should include the following-

  • Total cost to the client
  • Table showing the break-up price of each component of service provided
  • Quotation number
  • Date of issue of the quotation
  • Terms and conditions applicable
  • Business name or trade name
  • Address and contact details of the business
  • Period for which the quotation remains valid
  • Incidental costs if any
  • Signature of the customer
  • Date by which the order must be made

Format of a Price Quotation

quotation

Quotation Templates

Popular software such as Microsoft Word and Excel offer a variety of quotation templates, ready for use, as long as the information is filled in them. However, the templates suffer from the following drawbacks:-

  • The templates are relatively basic and generic.
  • The templates are unlikely to give the business any competitive advantage.
  • Any edits or changes to be made to the quotation document is usually a time-consuming process.
  • Lack of security and privacy is a big worry when it comes to Word and Excel.
  • Storage is not secure, as, in the event of a system crash, there is a high possibility of losing the data permanently. 

Modern software, such as ClearOne, has significant advantages and is far more superior to conventional Word and Excel programmes.

  • ClearOne boasts a platform that is seamless and makes work fun and hassle-free.
  • The convenience of sharing the document on various platforms such as WhatsApp, email and other digital channels makes this platform flexible and one of its kind.
  • Data on ClearOne is stored on cloud-based servers that are easily accessible and recoverable even when changing your device. SSL encryption based servers ensure a high level of security and safety of all data.
  • With a single click of the mouse, the quotation can be converted into an invoice, ready to be printed.
  • Log on to one.clear.in, sign up with your phone number, and you may proceed to use the tool.

ClearOne facilitates easy customisation of quotations, invoices and documents of a similar nature that can be created and styled with ease. Explore quotations under the ‘Estimate’ section of ClearOne software now!

About the Author

I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more

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