An estimate is an approximate value given before working out the scope and timelines in a contractor’s life.
On the other hand, invoices are sent across with exact values after the entire work is completed; invoices are more like account statements sent to the company/individual owner for the task done.
While one relies on judgment, the other is more exact based on the essential things done. However, this is just a superficial explanation of both words.
We will go slightly deeper into this with our article by telling you the exact differences between estimate vs invoice, when they are used, and how to use them.
Table of Content
To understand the main difference between an estimate and invoicing, let’s first understand the purchase process or the cash flow process.
A close look at this purchase process, and you notice that businesses approve the work only after getting an estimate. On the other hand, commercial invoices are raised only after the approval of the purchase orders.
This clearly states that an invoice and an estimate are entirely different.
The answer to this question is both yes and no. If your estimate matches precisely with the work you did and the amounts you had entered, then your estimate becomes your formal document for the invoicing.
However, if there is a slight difference in the two amounts, your invoice will be completely different. Invoices are based on the actual work done by you.
In most cases, the estimate doesn’t become your actual bill, as the actual work and the total amount in the final invoice differ from the calculations in the real world.
Cost of paints: $3000Painting of one wall: $300 Labor charges: $200 (per person per day) Cost of equipment: $1000
No, an estimate is different from an actual amount. We just saw how an estimate appears and what it does for the client. Let’s take a look at the total amount sheet. How does it work?
We already know what estimates mean and how it helps small businesses. It gives an approximate for the job to be done.
The invoice differs from the estimates in how it includes the cost of the job to be done. It details (more like an exact price) the job to be done.
It includes everything from the timeline to the resource and employment. It also includes the line items for the job.
The client usually confirms the costs in the estimates before the parties can move ahead. The quotations, on approval, can lead to the creation of a purchase order. While the invoice is generated after the job is done for the payment of the services that were provided.
You will need to add the more accurate values and other invoice elements to convert estimates to invoices.
For instance, estimates will not have details of the date of completion and line items along with the purchase units. You might have to add those details. Similarly, the taxation information needs to be added separately to the invoice.
You can use software tools to convert the estimate to an invoice. Click on “Convert to invoice,” add the necessary details, and your estimates are a detailed document for an invoice.
Conclusion
When you settle the accounts with your customer, the estimate is considered. You need to ensure that the estimation of the amount matches the exact amount. It helps release the payment in a timely manner and helps with project management.
Document your entire estimation and business costs properly for organized project management.
Author Bio Jeel Patel FounderJeel Patel is the founder of InvoiceOwl, a top-rated estimating and invoicing software that simplifies the invoicing and estimating processes for contractor businesses. Jeel holds a degree in Business Administration and Management from the University of Toronto, which has provided him with a strong foundation in business principles and practices. With understanding of the challenges faced by contractors, he conducted extensive research and developed a tool to streamline the invoicing and estimating processes for contractors. Read More
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