If it were necessary to make an ABC of the concepts that as an entrepreneur you have to handle with ease, that of the difference between budget and invoice would be one that cannot be missed. To start, it is convenient to limit both terms because they are very broad. Now we are interested in their aspect of customer relationship. But, better that we get into the matter now so as not to generate more doubts.
We are faced with two essential documents. One, the budget , because it establishes the base framework of the client/company relationship. The other, the invoice, the one that legally shows that we have paid for that work or product. The budget is neither mandatory nor official, unlike the invoice. However,Both can serve as legal guarantees against possible confrontations, for which they must reflect some key data, even if they have other specific ones:
- Complete company data (name, address, tax identifier, telephone)
- Complete customer data
- Service description
- Price broken down with and without taxes
- Payment conditions
The truth is that a proforma resembles, in content, a current invoice. Therefore, it is very likely that in the future you will use this document to create the final invoice.
The usual thing is to add this information:
- Date of issue.
- Supplier identification: trade name, CIF, address …
- Identification of the recipient: commercial name, CIF, address …
- Description of the operation: concept, quantity, unit price …
- Taxable base.
- VAT fee.
- Total price.
It is often said that a proforma is a document of sale of goods or services without fiscal or accounting validity . Its function is to indicate a purchase transaction to present it, for example to a customer.
This type of document is usually used in three cases:
- The proforma invoice is often used in international business operations to document the value of operation or as an offer to sell.
- You can issue proforma invoices so that your client documents the details of the product or service that you are requesting. If you reach an agreement, you will only have to convert that proforma invoice into ordinary.
- When applying for state subsidies or financing , it can serve as justification and commitment of an investment to be made.
For example: if your client wants to know in detail what the subsequent invoice will include, a proforma is sent to him with all the information broken down so that he is aware of it.
Is a quote and an invoice the same?
No, absolutely not. A budget and an invoice are not the same . From the outset, the budget is presented in the prelude to the relationship with the client, while the invoice is only necessary at the end of the service. Another significant difference is that the budget is a kind of informative note, compared to the invoice, an official document that must comply with strict rules to be valid.
But, this “voluntariness” of the budget does not place you on a lower plane, much less regarding the invoice. First, because well done, it is the best tool to get customers against the competition . Second, because in case of legal claims it will be a determining test, if it is done well, for our defense. Therefore, remember that your budget must include, in addition to the data mentioned in the previous section, a precise detail of the service:
- What the service contains
- The way in which it will develop
- The object of the service
- The materials to be used
- Time for which the conditions it reflects are maintained
- The company and client signature accepting it. This point is irreplaceable because without the signature it is difficult to demonstrate the agreement between the parties, the budget can be seen as mere information, one more offer among all the competition.
Other differences between budget and invoice
We still have to review some details that make a budget and an invoice not the same :
- The reason. Already in origin, budget and invoice respond to different issues. Typically, the budget is requested by the client expressly to know how you would solve their need. Obviously, you present the invoice to the client to receive payment for the service provided.
- His, her nature. A budget falls within the classification of sales documents of our company, since it is considered a commercial proposal , very elaborate, detailed and personalized, yes, but a commercial proposal. The invoice, however, is an insurmountable tax requirement, it would be included in the company’s financial documentation.
- The budget should reflect the price, both by units and by the service as a whole, and breaking down the taxes, but it is not a mandatory data. But, the Treasury does require us to have an invoice for each service that our company has performed. Previously, to issue invoices we must be properly registered.
- The budgets can be identified internally with a numbering, but it is not precise. However, all our invoices must have a unique and correlative numbering, without breaks neither in numbers nor in dates.
Despite this obvious difference between budget and invoice, they are closely linked and essential tools.
Because both documents have very similar characteristics, some billing programs allow the invoice to be generated automatically through the budget. Discover how to convert the commercial budget into an invoice with Excel once the client has accepted the commercial proposal.
It is also very common to confuse proforma with a budget since, a priori, they have a similar function. However, again, there are differences between one and the other.
The proforma and the budget are two documents that are sent to the client at different stages of the negotiation.
Normally, you start with the budget when the client asks you for information about how you can help them with your products or services. In this case, in addition to the price, you are also making a commercial proposal.
If the client gives the approval to the budget, you can send the proforma to detail everything that has to do with the economic part if they require it. If not, it won’t be necessary.
Let’s say that the process proceeds as follows:
2nd- Proforma invoice.
3º- Execution of the project/sale of the products.