What quotation means
A quotation is a firm offer at a fixed price.
That is what separates it from an estimate. An estimate is an approximation, given before the full scope is known, and both sides understand the final figure may differ. A quotation states the price for defined work or goods, and the supplier is committing to it.
Because it is an offer, acceptance by the customer generally creates a contract on those terms. That is why a quotation should be as carefully drafted as any other contract document.
A usable quotation identifies the supplier and the customer, describes exactly what is being supplied, states the price and whether it includes VAT and delivery, states payment terms, states the delivery or completion timeline, states how long the quotation remains open, and attaches or references the terms and conditions that will apply.
How it is used
The quotation is the front end of most Nigerian business transactions.
A customer requests a price. The supplier issues a quotation. The customer accepts, often by issuing a purchase order referring to it. The goods or services are supplied. An invoice follows, and payment is made against it.
The validity period is the clause that earns its keep. In a market where the naira moves and imported input costs change, a quotation open indefinitely is a commitment the supplier cannot control. Stating that it is valid for fourteen or thirty days, and subject to confirmation afterwards, is normal and expected.
The other clause worth attention is the scope. A quotation that describes the work loosely becomes the reference point for what was included, and a customer who reasonably read it as covering something will argue exactly that. Listing what is excluded is as useful as listing what is included.
Attaching terms and conditions matters too. Where a quotation is accepted without them, the contract may be on the customer's terms rather than yours.
Key features
- An offer to supply at a stated price, capable of acceptance
- Distinct from an estimate, which is an approximation
- Should state a validity period, especially where input costs move
- Should state whether VAT and delivery are included
- Should attach or reference the supplier's terms and conditions
- Acceptance generally creates a binding contract on the quoted terms
How this works in Nigeria
Exchange rate movement is the practical Nigerian issue, and it explains why validity periods are short here.
A supplier importing inputs and quoting on today's rate carries the risk of any movement before the customer accepts. A quotation valid for seven or fourteen days, or expressed as subject to the rate at the time of order, transfers that risk sensibly rather than leaving it with whoever moves last.
Quotations also appear in procurement and tendering, where the process is formal and the quotation is submitted against a defined specification. In public procurement the requirements are prescribed, and a quotation that omits required documents is rejected regardless of price.
The third Nigerian point is the proforma invoice, which is used far more here than in some markets. It is not a demand for payment for goods already supplied. It is a document setting out what will be supplied and at what price, used to arrange payment in advance, to open a Form M for an import, or to obtain internal approval. Treating it as an ordinary invoice, in either direction, causes confusion in the accounts.
Quotation vs proforma invoice vs invoice
Three documents in the same transaction, at three different moments.
A quotation comes first. It is an offer to supply at a stated price, open for a stated period, and acceptance creates a contract.
A proforma invoice comes next, where one is used. It sets out what will be supplied and at what price, and it is used to arrange advance payment, to open import documentation, or to obtain approval. It is not a demand for payment for goods already delivered, and it does not usually go into the accounts as a sale.
An invoice comes last. It is issued after supply, or according to the agreed payment schedule, and it is a demand for payment. It carries VAT where applicable and it is what the accounts and the tax return are built on.
Calling a proforma an invoice is the commonest confusion, and it produces both accounting errors and arguments about whether payment was due.
Limits and risks
A quotation binds you if it is accepted within its validity period, so a mistaken price is your problem unless the error was obvious enough that the customer could not reasonably have believed it.
It also cannot cover what it does not describe. A vague scope becomes the customer's interpretation of the scope.
Without attached terms, acceptance may bring the customer's terms into play instead of yours, particularly where they accept by issuing a purchase order carrying their own conditions.
And a quotation says nothing about what happens when circumstances change. A supplier facing a cost increase mid contract needs a variation agreed, not a revised quotation issued unilaterally.
Worth knowing
Put a validity period on every quotation and state whether the price includes VAT and delivery. Nigerian suppliers most often lose money not on the price they quoted but on a quotation accepted six weeks later, after the rate moved, with no expiry to point at.
Questions people ask
What is a quotation?
An offer to supply goods or services at a stated price, usually open for a stated period. Acceptance by the customer generally creates a binding contract on those terms.
What is the difference between a quotation and an estimate?
A quotation states a firm price for defined work and commits the supplier. An estimate is an approximation given before the scope is fully known, and both sides understand the final figure may differ.
What is a proforma invoice?
A document setting out what will be supplied and at what price, used to arrange advance payment, open import documentation or obtain approval. It is not a demand for payment for goods already delivered.
How long should a quotation be valid?
Short enough to control your cost risk. Seven to thirty days is common in Nigeria, and quoting subject to the exchange rate at the time of order is a reasonable alternative where inputs are imported.
Am I bound by a price I quoted?
If it is accepted within the validity period, generally yes. A mistaken price binds you unless the error was so obvious that the customer could not reasonably have believed it was intended.
Should I attach my terms to a quotation?
Yes. Without them, acceptance may bring the customer's terms into play instead, particularly where they accept by issuing a purchase order carrying their own conditions.