What is a Quotation in Business?

Businesses are commonly asked for a quotation by potential customers to help them to understand exactly how much a product or service is going to cost before they commit to buying.

What is Included in a Quotation?

A quotation can be quite a detailed document, depending on the product or service involved. They become necessary in businesses that do not have a standard price list and/or need to provide bespoke pricing for each piece of work they carry out. A quote can include details such as:

  • Time requirements
  • Delivery timescales
  • Pricing
  • Materials
  • Exclusions
  • Terms of service
  • Requirements from the customer
  • Expiry date or time that the quote is valid for

Quotations form part of the source records in accounting, helping with activities such as financial forecasting and budgeting as a business plans for its future.

What is the Difference between Quotation and Sales Order?

A quotation tells a potential buyer how much goods or service will cost them, but they are not legally bound to make a purchase. A sales order is raised once a quotation is accepted by the customer, which is a binding document between the parties involved meaning the customer cannot cancel the order unless the business offers a cancellation policy.

The Difference Between a Quotation and an Estimate

Normally a quotation cannot be changed once they are sent to a customer and the business will most likely need to honour the price they quote. That means they need to make sure what they quote is correct and covers all the costs of the product or service being sold. Where it is not possible to estimate the cost of a job with certainty, a business will provide an estimate.

What is an Estimate?

Sometimes it is very difficult to provide an upfront quotation of what a job will cost because there is an element of unknown. For example, a builder renovating an old property may face unexpected problems as they start work.

In these cases an estimate may be provided which is a reasonable guess at what a product or service might cost, using their experience. It gives the customer an idea of what it is going to take to get the job done and incorporates a contingency (buffer) to account for the unknown costs.


About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek and money nerd helping financial DIY-ers organise their money so they can hit their goals quicker.