While external customers place orders for a good or service and ultimately pay for it, internal customers do not. External customers are also external to the organization supplying the good or service, but most internal customers are not.
The external customer is the ultimate consumer of the company's goods or services, but the internal customer only facilitates the delivery to the external customer. The internal customer can be a coworker within the company, such as a worker in a different department. An internal customer can be part of an external organization that is intimately linked in with the company by providing services such as delivery of the goods to the external customer.
Ultimately, an external customer has the option of taking his needs to another company if he is unsatisfied with the present one, but an internal customer is likely to have a binding contract to the company.