Aakvatech Limited - Quotation vs Sales Order vs Proforma Invoice

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1. Quotation

Purpose: A quotation is an offer to sell goods or services at specified prices and terms.

Key characteristics:

• Issued before any commitment
• Not legally binding (unless explicitly accepted and governed by contract law)
• Used for price discovery and negotiation
• Valid for a limited period (e.g., 15–30 days)

Typical contents:

• Item description, quantity
• Price, discounts
• Delivery timeline
• Payment terms
• Taxes (indicative)
• Validity date

Example use case: Customer asks for pricing → you send a quotation.

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2. Sales Order (SO)

Purpose: A sales order is a confirmed commitment to sell, created after customer acceptance.

Key characteristics:

• Created after quotation approval or direct customer order
• Legally binding (commercial commitment)
• Internal execution document
• Triggers procurement, production, or delivery

Typical contents:

• Customer details
• Confirmed items and quantities
• Agreed prices
• Delivery address and schedule
• Reference to quotation or contract
• Payment terms

Example use case: Customer accepts quotation → sales team creates a sales order in ERP.

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3. Proforma Invoice

Purpose: A proforma invoice is a preliminary invoice issued before actual shipment or final invoicing.

Key characteristics:

• Not a tax invoice
• Used for advance payment, import/export, or LC processing
• Looks like a final invoice but clearly marked “Proforma”
• Common in international trade

Typical contents:

• Seller and buyer details
• HS codes (often)
• Item value
• Incoterms
• Estimated taxes and duties
• Shipment details

Example use case: Customer needs a document to remit advance payment or for customs approval.

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Side-by-Side Comparison

Aspect	Quotation	Sales Order	Proforma Invoice
Issued when	Before commitment	After acceptance	Before final invoice
Nature	Offer	Confirmation	Advance billing reference
Legal binding	❌ No	✅ Yes	❌ No
Used by	Sales	Operations / ERP	Finance / Trade
Triggers delivery	❌ No	✅ Yes	❌ No
Triggers payment	❌ Usually no	❌ Usually no	✅ Often yes
Tax compliant	❌ No	❌ No	❌ No

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Typical Flow (Most Businesses)

1. Quotation →
2. Customer acceptance →
3. Sales Order →
4. Proforma Invoice (if advance payment required) →
5. Delivery / Service →
6. Tax Invoice

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Quick Rule of Thumb

• Quotation = “Here’s our price”
• Sales Order = “We’re committing to deliver”
• Proforma Invoice = “Pay or approve before we invoice for real”