What is a Proforma Invoice and What is its Purpose?

Invoicing is an essential part of running a business, helping to keep cash flow in order while maintaining good relationships with your supply chain. In this article, we’ll help you understand what a proforma invoice is, and explain how it differs from a standard invoice. We’ll also provide instructions for creating your own proforma invoices with ease. 

Key takeaways

• A proforma invoice is a preliminary bill of sale, giving customers a clear cost estimate before goods or services are delivered.
• It’s not legally binding and differs from both estimates and commercial invoices.
• Proforma invoices are especially useful in international trade, helping with customs clearance and advance payments.
• They add clarity and professionalism to transactions, reducing disputes and building customer trust.
• Creating a proforma invoice is straightforward and involves listing key details such as issue date, buyer and seller details, item descriptions, costs, and terms.

What is a proforma invoice?

A proforma invoice (also known as a ‘pro forma invoice’) is a bill of sale that you send to a customer before your business delivers its goods/services. It should contain a description of the items being sold, their price, the total amount payable, and any relevant taxes/fees.

This information gives your customer a precise estimate of the expected cost of their order.

The main difference between a proforma invoice and a standard commercial invoice is that a proforma invoice is preliminary or provisional, which means its details are subject to change. A proforma invoice doesn’t require an invoice number and should be clearly labelled with the term ‘proforma’.

What is the purpose of a proforma invoice?

A proforma invoice can be a useful addition to any business’s sales process. It gives customers a good faith estimate of the cost of a sale and reduces the likelihood that they are exposed to any unanticipated charges, reducing the risk of payment disputes when commercial invoices are issued.

Here are a few scenarios where proforma invoices are commonly used:

• When you’re declaring the value of goods to customs when exporting to foreign countries
• When you don’t have all the details to issue a commercial invoice
• When you need something to act as a formal payment request when a recipient wishes to pay in advance

What does a proforma invoice look like?

Below, we’ve created an example of a proforma invoice to give you a better understanding of what it looks like:

What is included within a proforma invoice? 

These are the details that your proforma invoice should include:

• Date of issue: The date the proforma invoice is created, which helps track validity and payment timelines.
• Your contact details: Key business information, such as your name, address, phone number, email, and ABN.
• A description of the goods and services you provide: A clear outline of the products or services being sold, including quantities and item details.
• The price of the goods and services you provide: The agreed cost for each item or service, usually shown per unit and as a line total.
• Taxes or fees that apply: Any applicable charges such as GST, customs duties, or service fees, so the buyer knows the true cost.
• Applicable shipping costs: Estimated delivery or freight expenses, especially important for international transactions.
• The total amount due: The full estimated cost of the transaction, combining product prices, taxes, and shipping.

What are the benefits of using a proforma invoice?

Using a proforma invoice can offer several advantages for both buyers and sellers. It provides clarity, flexibility, and professionalism throughout the sales process, while also helping to streamline international transactions. Here are the key benefits:

• International clearance: Proforma invoices are often used when declaring goods at customs, making it easier to move products across borders smoothly.
• Informal agreement: They act as a non-binding document that sets expectations between buyer and seller before a commercial invoice is issued.
• Ease of change between parties: Because a proforma invoice isn’t final, details can be updated if quantities, prices, or terms need adjusting.
• Professional format: Providing a proforma invoice shows customers you run an organised business, helping to build trust and credibility.

What is the difference between an invoice and a proforma invoice?

There are several key differences between standard commercial invoices and proforma invoices. The table below provides a comparison of proforma invoices vs tax invoices:

What is the difference between a proforma invoice and an estimate?

An estimate provides information about what your customer can expect from their transaction before it has been agreed upon. A proforma invoice, on the other hand, typically provides full and final details once your customer has committed to a transaction.

The table below breaks down the key differences:

When should you send a proforma invoice?

There are two main reasons why businesses may send a proforma invoice before a sale is completed:

• Cost estimate: Proforma invoices provide customers with a breakdown of the items they’ve requested and provide an accurate indication of their total amount due. The proforma invoice is not a payment request and can still be adjusted if the goods and services you provide are being negotiated.
• International shipping: Proforma invoices are commonly used by export companies and include details about shipping, packaging, weight, and delivery fees. They also provide a clear declaration of the value of items so they can quickly pass through customs.

Is a proforma invoice legally binding?

No. A proforma invoice is a business document, but it’s not legally binding. Although it typically provides a price estimate for a business’s product or service, it’s not a legal record of sale and, therefore, cannot be used as evidence for a completed transaction.

How do you create a proforma invoice?

A proforma invoice can be created using a free template from the QuickBooks Tools & Templates hub. Once you’ve downloaded your template, follow these steps:

1. Title your template: You should start the title with ‘Proforma Invoice’ and include a unique reference number (for example, PI-2025-001) so both you and the buyer can track it easily.
2. Add the date of issue and a valid-until date: State when the proforma was created and how long the quote is valid (e.g. valid for 30 days).
3. Include your business contact details: Business name, trading address, phone, email and ABN. 
4. Add the buyer’s details: Customer name, billing address, delivery address (if different) and contact person/email.
5. List a clear description of goods or services: For each line item include quantity, unit description (model/SKU), unit price, and a line total. Be specific—clarity reduces disputes.
6. Show the price breakdown: Display unit prices, line totals, subtotal, and currency. If you’re quoting in a foreign currency, state the exchange rate used and the date of that rate.
7. Specify taxes and additional fees: Show GST or any other applicable taxes and whether they are included or added on top. If any duties or customs fees are likely, note them as estimates.
8. Add shipping, insurance and handling costs (if applicable): State whether these are estimates and include Incoterms (e.g. DDP, EXW) for international shipments where relevant.
9. Show the total amount due clearly: Break down subtotal + taxes + shipping = TOTAL. Make the total prominent so it’s obvious at a glance.
10. Set payment terms and bank details: State payment method (e.g. bank transfer), required timing (e.g. payment in advance), and full payment instructions (bank name, BSB & account number for Australian payments, SWIFT/BIC for international transfers). Include any reference the payer should use.
11. Add a short disclaimer/terms: Example: “This is a proforma invoice and not a tax invoice. Final prices may vary; a commercial invoice will be issued on dispatch.”
12. Authorise the document: Include the name, job title and contact details of the person who authorised the proforma—optionally add a signature line.
13. Save, export and send professionally: Export as PDF, attach to an email, and keep a copy in your records. Track which version was sent and the date.

Alternatively, QuickBooks’ invoicing software contains templates that you can use to create proforma invoices in just a few clicks. You don’t need to wrestle with time-consuming updating or double-checking of invoice numbers, making QuickBooks’ software a simple way to send accurate invoices, fast.

Can you pay on a proforma invoice?

A proforma invoice is not a legal document, which means your customer is not legally obliged to pay the amount it lists. Instead, you need to issue a commercial invoice with an invoice number to request payment. Proforma invoices can’t be used to reclaim tax, either.