Debitoor Dictionary

Accounting terms explained simply

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  1. Sales
  2. Quotation
  3. Invoice

Estimate - What is an estimate?

In sales, an estimate is a non-binding document sent from a seller to a buyer indicating pricing for selected products or services

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Also known as a ‘cost estimate’, it is an informal document that can be used early-on in the sales process to provide precisely that - an estimation of the pricing of specified goods or services.

The buyer might request an estimate even before a quotation is created or might choose to go directly to the invoice. Because it is a non-binding document, a buyer can generally choose to opt out of the sale without repercussions.

When is an estimate used?

An estimate is typically requested or created in the early stages of a sale or project. The document provides information about the items or services being provided by the seller to the buyer along with the predicted pricing based.

Because an estimate is non-binding, buyers can potentially request estimates from a number of different sellers or providers and then select the offer that works best for them.

Although it is not a formal business document, it can be an important one for small businesses when it comes to staying competitive and attracting new business. An appealing estimate sent to a potential customer certainly helps to secure a sale, so it pays to know what your competitors rates might be and what you’re willing to charge.

Who should use estimates?

An estimate can be used in a variety of different situations and in different industries. Most commonly, estimates are used in project-based work such as construction, contracting, design, etc.

These allow for the costs of the elements of a certain project, specified by a potential customer, to be clearly stated. Because it is an estimate, the costs should reflect the seller’s best guest of the total that will be due should the sale go ahead.

Why use an estimate instead of a quote?

Yes, estimates are different from quotations. A quotation, while not legally binding still carries more weight when it comes to official documentation within the sales process.

Technically, a quote occurs when a customer has agreed to do business, but is in the process of working out the specifics with the seller. A quote should be either accepted or rejected. If accepted, it would typically be converted to an invoice. If rejected, a revised quote usually follows.

An estimate however, provides the potential customer with information that will help them to make a decision regarding a particular business as the provider of the goods or service they are looking to purchase.