A shop owner once told me he'd been sending "invoices" to a customer for weeks before the sale was even confirmed — because that's just what he called any document with prices on it. When the deal fell through, he had a folder full of "invoices" for a sale that never happened, and no idea which document actually mattered for his GST filing.
This mix-up is extremely common, and it's not really anyone's fault — nobody teaches this stuff. So here's the plain-English version: four documents, what each one actually does, and when you'd issue which.
Quotation — before the deal is confirmed
A quotation (or estimate) is a proposal. You're telling a potential customer "here's what I'd charge for this" before they've agreed to anything. It has no legal weight as a payment demand — the customer can say no, negotiate, or ask three other vendors for their quotes too.
Key things a good quotation needs: a validity period (so the price doesn't stay "open" forever — 15 days is common), itemized pricing, and a clear enough scope that there's no ambiguity if they do say yes. Once they accept, that quotation effectively becomes the basis for the actual sale.
Purchase Order — the buyer formalizes the request
This is the one people get backwards most often. A Purchase Order (PO) is issued by the buyer, not the seller. If a company wants to order 50 office chairs from your furniture business, they send you a PO — it's their formal, internal-approval-backed commitment to buy at the agreed price.
Why it matters: a PO number becomes a reference that both sides use for the rest of the transaction. When you eventually invoice them, you'll usually quote "PO #1234" on the invoice — it's how their accounts team matches your invoice to something they actually authorized, which is often required before they'll release payment at all.
Delivery Challan — the goods are moving, but it's not a sale (yet)
This is the most misunderstood of the four. A delivery challan accompanies goods in transit when there's no sale happening — sending samples to a client, moving stock between your own two warehouses, sending items out for job work (like fabric going to a tailor), or a customer return.
Because no sale is occurring, a delivery challan has no price, no GST calculation, no "amount due." Just what's being sent, how much of it, and why. This trips people up because it looks similar to an invoice at a glance — but including pricing on a challan when there's no sale can actually create tax complications, not avoid them.
Invoice — the actual, legal demand for payment
The invoice is the one document here with real legal and tax weight. It's issued after a sale happens (or as the sale happens) and is what triggers your GST liability — the tax office cares about your invoices, not your quotations or challans. It needs to include GSTIN (yours and the buyer's, if registered), HSN/SAC codes, a proper tax breakdown (CGST+SGST for intra-state, IGST for inter-state), and it has to be sequentially numbered — you can't skip invoice numbers or reuse them.
Payment Receipt — closing the loop
Once the customer actually pays, a receipt confirms it happened — amount received, mode of payment (cash, UPI, bank transfer), and ideally a reference back to the invoice it's settling. This is the document you hand over (or the customer asks for) as proof, separate from the invoice itself.
Putting it in order
For a typical B2B sale, the sequence usually looks like: Quotation (you propose a price) → Purchase Order (they formally agree and commit) → Delivery Challan (if goods ship separately from billing, e.g. a large order sent in batches) → Invoice (the tax-relevant bill) → Payment Receipt (confirms it's paid). Not every sale needs all five — a simple retail sale might just be Invoice → Receipt — but knowing which document does what means you're never guessing which one you actually need.
We built free generators for all five: Quotation Generator, Purchase Order Generator, Delivery Challan Generator, GST Invoice Generator, and Payment Receipt Generator — each with your logo, signature, and seal, free to print or save as PDF.