How to Turn an Estimate Into an Invoice

Confirm the approved estimate

What's the number, version and date of the estimate or quote accepted by the client, and what changed afterwards? Confirm when and how the estimate was approved. Confirm the approved scope, quantities, rates, assumptions, exclusions, timing and payment arrangements. Avoid final billing based on an early draft version or an expired estimate that wasn't reconfirmed. Be sure to have documentation of approval available. Use it to prepare the invoice.

• Accepted estimate number/version/date
• Approval date/method on record
• Scope/milestone authorized
• Rates and payment arrangements agreed to

Reconcile work and approved changes

Review the estimate line items vs. actual work delivered, quantities, confirmed materials, billable time, etc. Exclude work not done/cancelled (and clarify deferrals). Convert provisional amounts to a well-supported calculation.

If there's any further work, follow the agreed change process, using a change order, revised estimate, email approval or another agreed confirmation method. Hold onto that confirmation. Don't charge without approval or another basis in the agreement. Just because the real cost turns out to be more doesn't mean you automatically get to charge the full difference to your client.

So say, for instance, the estimate was 5,000 yuan and the client signed off on an additional 800 yuan of work, for a total of 5,800 yuan. Make sure you note the date of acceptance or change reference for the addition. Make note of any deletions or reductions. Make it evident to the client why the final total is the same as or different from the estimate.

• Completed deliverables / quantities
• Final labor or service amount
• Approved materials / changes
• Any work deleted or postponed

Build the invoice calculation

Break out clear descriptions, quantities, rates and line totals so the client can verify each item. Deduct agreed discounts and calculate applicable tax according to the actual transaction and agreement. Do not count the same tax or discount twice at different stages.

Verify and display clearly any advance payments, retainers, credits and prior invoice amounts. Don't bill again for work you've already billed. Account for advances received and credits according to the agreed accounting treatment; don't just bury them in a lower service price. Show total charges, amounts paid or credited, and the amount due now. Previously invoiced does not mean paid.

So in the first case, the original 5,000 yuan + the approved 800 yuan totals 5,800 yuan. If you already received an advance payment of 2,000 yuan, then the balance due is 3,800 yuan.

• Final charges itemized
• Discounts and applicable taxes
• Advances / previous payments
• Balance due now

Reference and send both records

Include the invoice's own number and actual issue date. Reference the accepted estimate number and applicable change approvals, but don't overwrite the estimate. Include the service period and delivery or milestone information. Include the due date, agreed payment terms and payment method.

Attach or link the estimate if needed or helpful. At a minimum, include the estimate number so the client can locate it. If there has been a substantial change in the final amount, provide a short reconciliation before sending the invoice. Maintain the invoice and source records, and record payments against the invoice. Don't change the accepted estimate.

• References to invoice and estimate
• Payment due date and method
• Significant changes explained
• Keep approval / change history intact

Start from the accepted version

Understand what the client authorized: the complete project, discovery, an advance-payment agreement, a purchase or a single milestone. If you have an agreement to bill in stages, an estimate converted to an invoice does not provide authority to ask for the entire contract amount.

With a partially complete project, request payment for the agreed stage or progress. Point out the scope and amount. Don't just call the whole project done.

Reconcile changes and payments before copying the total

In another project, the client accepted 5,000 yuan originally. The client approved another 800 yuan of work and agreed to remove work or reduce the service charge by 300 yuan. The new total (pre-tax) is 5,500 yuan. An advance payment of 1,500 yuan has been received. So 4,000 yuan is due now.

Show the original work, additional work approved, removals/credits, payments received and the amount currently due. This allows the client to track the changes relative to the approval record. Don't bury an advance payment in service prices. Don't include unapproved additional work as an approved charge.

Update identifiers and dates for the new document

Use the invoice number and actual issue date. Reference the estimate number and, if there is one, the client's purchase order number. Leave the estimate as a preparation and approval record. Don't overwrite the version the client originally accepted.

Record the actual service period and delivery date, and calculate the due date from the payment terms. The date the estimate was accepted may not be the invoice issue date or the start of the payment period. The estimate expiration date is not the invoice payment due date. You might need to verify the tax point and invoicing requirements separately for the transaction.

Confirm quantities and tax treatment

Estimated quantities may be provisional, with assumptions behind the amounts. The record of what's agreed is in the accepted version. The record of what's done is in the delivery records. How is the invoice calculated: fixed price, actual quantities or milestone billing? Keep the supporting documentation when you have significant differences.

Fixed price: even if time spent or internal costs change, it doesn't automatically affect the agreed selling price. Quantity billing: use the quantities and prices confirmed by both parties. The final amount may be higher due to uncertainty described in the estimate or approved adjustments, but it should still follow the agreement. Explain the higher amount in advance, before the client sees a surprise total.

The word “estimate” doesn't mean changes can go unconfirmed.

Look further than the subtotal. Check taxes, discounts, shipping, currency and payment method for the final transaction. A provisional tax figure doesn't determine the actual tax treatment. That's based on the location and transaction.

Keep the calculations and reasons behind changes.

Get the right details if the client entity responsible for payment changes. Don't just use the contact person's name for the company name. Verify receiving-account changes through a trusted existing channel. Allow time for the client to update internal records.

Send the evidence the client needs to approve payment

In the email, spell out the change in the final total briefly, then point back to the approval records that support it. Outline the agreed scope, approved changes, payments already received and deducted, balance and deadline. Make sure to include the purchase order number or estimate/project reference that the client's process calls for, with time summaries as appropriate, delivery and acceptance records, and change approvals as applicable. Make it short and readable.

Track the invoice without losing the estimate history

Maintain the final invoice, original estimate, agreed changes and payment records in one project. Update the invoice's payment status and outstanding balance based on actual payments received. Don't create independent revenue transactions for the estimate and invoice. Acceptance of the scope and price is not receipt of payment. Receipt of payment should be a separate entry. When making an adjustment to the invoice, maintain a link back to the original, noting which version to use and what was changed. Keep connected records of preparation, approval, billing and payment.