Are Quotes Legally Binding? Everything You Need to Know
You know the drill: You get a job request email from a potential client, visit the job site to do an assessment, and give them a quote. To your delight, they accept.
Then, you fit them into your schedule, order any necessary materials, and assign an employee to the job.
But, when you finish the job and send an invoice, the client refuses to pay you the amount outlined in the quote, claiming your quote wasn’t binding. Now what?
Your next steps depend on whether or not the customer formally accepted an estimate or a binding quotation, and whether your agreement was verbal or in writing.
Read through this guide to learn more about legally binding quotes, and how to avoid these sticky situations in your own business.
⚠️ Disclaimer: This content is for informational purposes only and should not be considered legal, accounting, or tax advice, or a substitute for obtaining such advice specific to your business. Please refer to an experienced lawyer in your jurisdiction for particular information on how to write legally binding terms and conditions.
What is a binding quotation?
A binding quotation is when a quote for a job becomes a legally binding agreement between you and a customer.
In contract law, in order for an offer to become legally binding, it must include what’s called consideration. Consideration means how each party will benefit.
For example ➡️ In home service industries, you provide a service to your client in exchange for payment.
For a price quotation to become a binding offer, it must:
- Describe what each party will provide to the other
- Include formal acceptance from the customer, such as an email confirmation or signature
To fulfill the agreement, you (the contractor) can either respond to the client accepting the order or complete your obligations to the client on a specified day.
But it’s important to remember you and the client can both cancel the agreement prior to its completion. That means if a client gets in touch to cancel the job before it starts, they’re not obligated to pay you beyond a previously requested, non-refundable deposit.
READ MORE: How to ask for a deposit politely
When is a quotation legally binding?
Whether or not a quote is legally binding depends on a few different factors. Typically, a binding quotation needs to be both:
- Accepted by the client
- In writing
If you simply send a price quote to a client and they never actually accept or confirm it, it won’t be considered legally binding.
READ MORE: How to write a quote for a job
On the other hand, if you provide a written quote to a client detailing a job and they provide an electronic signature to confirm their acceptance, a formal agreement has been established. Chances are, this would hold up in court in the event of a dispute.
Keep in mind that a client can also respond with a counteroffer or questions. This does not count as acceptance. Instead, you’ll need to figure out whether the quote needs to be adjusted and resent based on their requests.
It’s important to note that written estimates are not typically considered legally binding, so this information is only applicable to detailed quotes and not ballpark numbers.
READ MORE: Quote, estimate, bid, proposal: How are they different?
Are verbal agreements and offers binding?
Technically, yes. However, verbal agreements are binding only if you can prove their existence, which can be difficult.
While handshake agreements and verbal contracts are binding contracts—as long as they include consideration and acceptance from both parties—they’re notoriously hard to enforce. This is because you typically have little to no solid proof that an offer was made or accepted.
Your best bet for creating a binding agreement is to use job quoting software. From initial offer to formal acceptance, quoting software documents every step of the process. A written contract is the only surefire way to not only hold a client to a fixed price but to provide evidence of the agreement in court if you ever need to.
READ MORE: How to follow up on a quote
Why are binding quotes important?
Binding quotes are important because they help you to:
- Plan for consistent, predictable cash flow
- Encourage clients to commit to work
- Look more professional
- Order materials and supplies for confirmed jobs only
- Have proof of an agreement in the event of a dispute
Binding quotations also provide benefits to your accounting processes.
For example ➡️ A formal quote will help to inform your invoices, ensuring that you bill clients accurately. And, clients who know exactly what to expect in terms of cost and budget are more likely to pay you on time and in full.
How to make legally binding quotations
The best way to create legally binding quotations is to use a quote template that outlines and documents the services you will provide, how much the client will pay you, and the acceptance of the contract by each party.
Avoid falling into these easy traps when making a legally binding quotation:
- Handshake agreements and verbal contracts
- Casual estimates and ballpark numbers
- Making assumptions about a client’s acceptance without confirmation
You can always these things with a client at a job site, but to make sure your discussion turns into a binding quote, you should always follow up with a formal quote that outlines the specifics of your offer.
That way, you reinforce what you’ve already said in person. A formal quote also gives the client an opportunity to see the cost breakdown and ask any follow-up questions about the job.