Updated on: Jun 16th, 2022
6 min read
Estimates or proforma invoices help businesses give price quotes to customers before the sale can take place. This article provides complete details about estimates.
An estimate refers to a non-binding document that a seller sends to a buyer intimating the pricing for products or services that interests the buyer. An estimate depicts the amount that the seller wants to charge for goods or services yet to be supplied to a potential customer.
It is an informal document usually used during the initial stages of sales. It is also a way to agree or negotiate on the price and scope of work before it commences. It is also known by the names such as cost estimates or proforma invoices or bids.
Due to its nature as a non-binding document, the buyer may opt out of the sale transaction without worrying about any repercussions. The buyer may call for an estimate even before a quotation is raised. Further, there are cases where the buyer may want to go directly with the invoice by the seller. Hence, the issue of estimates is not mandatory under any law but is a good business practice.
An estimate gives information about the items or services by the seller to the buyer with the predicted prices.
A customer usually requests estimates from various sellers or service providers to select the best offer that works for him in a particular market. It is allowed due to the nature of an estimate that it does not bind the parties involved in it.
It is essential for businesses, especially MSMEs, to stay competitive and attract potential buyers, customers or clients. If the estimate is appealing enough, it helps in securing a deal or sale. It enables the buyers to know the average price in the market for a particular product or service. Further, it allows sellers to know their competitors’ price quotes and how much they are willing to charge.
The following are the benefits of using estimates-
The use of estimates can be seen in different situations and across Indian industries. Estimates are popular among businesses of all sizes and supply chain levels, such as manufacturers, wholesalers, retailers, or other intermediaries. However, estimates are most commonly used in project-based jobs such as construction, design, contracting, etc.
Estimates must contain all the necessary cost elements of a specific project specified by a potential customer. Such costs should reflect the seller’s best judgement of the total price due if the parties proceed with the sale transaction.
The following are the fields to be included in the format of an estimate-
ClearOne is a cloud-based invoicing software that allows businesses to create and share professional invoices, estimates, e-invoices, and e-way bills safely and securely.
A sample format of an estimate as generated from the ClearOne invoicing software is given below-
When the seller issues an estimate, the potential customer may either accept the estimate, negotiate the prices and scope of supply, or even decide not to go ahead with the transaction. If the potential customer agrees with the estimate, he will create a purchase order. The seller will supply goods or services per the purchase order and issue a standard or tax invoice.
The following are the key similarities or differences between an invoice and an estimate:
|Point of comparison||Invoice||Estimate|
|Meaning||Formal document with the products or services, pricing, scope of work, including the due balance or the amount owed by the customer.||Non-binding document with the products or services, pricing, the scope of work, including the amount to be owed by the customer, if they go ahead with the transaction.|
|Time for issue||Anytime after the supply commences or at the end of a sale transaction.||Before the beginning of a sale transaction.|
|Accuracy of value or price||Exact calculation.||Rough calculation.|
|Effect due to changes||Any particulars of the invoice can be revised by the issue of credit notes or debit notes.||The issue of another fresh estimate to alter any particulars of the estimate based on negotiations.|
The following are the key similarities or differences between a quotation and estimate:
|Point of comparison||Quotation or Quotes||Estimate|
|Meaning||Non-binding documents to provide projected rate and price for a particular job or supply after entering the supply contract.||Non-binding documents that provide the projected rate and price for a particular job or supply before entering a supply contract.|
|Importance||More important for a business.||Less critical when compared to quotes.|
|Frequency of use||More frequently used between two parties.||Less frequently used between two parties.|
|Pricing||Involves a fixed price offer that cannot be changed once accepted by the customer.||Involves an approximate price which could be subject to change.|
ClearOne Invoicing software allows users to convert estimates into invoices with a click of a button. Create one estimate and convert it to many other documents such as an invoice, e-invoice, and an e-way bill compliant with the GST law. Explore now.