Everything you need to know

A proforma invoice is a preliminary bill of sale sent to buyers in advance of the delivery of goods. Learn how and when to use them for your business.

Whether you like it or not, invoicing is an essential part of running a business. Issuing invoices to customers promptly and paying your invoices from suppliers on time keeps cash flowing into your business and maintains good relationships with your supply chain. But what about proforma invoices?

In this blog post, we’re going to take a closer look at the proforma invoice, meaning a bill of sale for your customers before you deliver your services (sometimes written as ‘pro forma invoice’). We’ll help you understand what a proforma invoice is, how it differs from a standard invoice, and when your business should use it

What is a proforma invoice?

A proforma invoice is a bill of sale that you send to a customer before your business delivers its goods and services. It usually contains details such as a description of the items being sold, their price, and the total amount payable, along with any taxes and fees incurred. This information gives your customer as precise an estimate as possible 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.

A few scenarios where proforma invoices are commonly used include:

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

There are several key differences between standard commercial invoices and proforma invoices:

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

In many ways, a proforma invoice has more in common with an estimate than a commercial invoice. Estimates and proforma invoices are both used at similar points in the sales process and provide your customer with information about their transaction. However, there are also crucial differences 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 typically provides full and final details once your customer has committed to a transaction.

When should you send a proforma invoice?

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

1. 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.
2. 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?

A proforma invoice is a crucial business document, but it’s not legally binding. A proforma invoice typically provides a price estimate for a business’s product or service. It is not, however, a legal record of sale and, therefore, cannot be used as evidence for a completed transaction.

What should a proforma invoice look like?

A proforma invoice usually includes the following details:

• Date of issue
• Your contact details
• A description of the goods and services you provide
• The price of the goods and services you provide
• Sales tax and any other taxes or fees that apply
• Applicable shipping costs
• The total amount due

How do you create a proforma invoice?

Wondering how to make a proforma invoice? This section has you covered. A proforma invoice can be created using templates with Microsoft Word and Excel, although these take time to edit and complete accurately. 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 error-free 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 sales tax, either.

FAQ

How Do You Send a Proforma Invoice?

Proforma invoices can be sent out just like your other invoicing documents. Typically, these invoices can be electronically sent through email or can be printed out and sent through the mail.

Can Payments Be Made on a Proforma Invoice?

A proforma invoice is an estimate of sale and not an actual precise transaction, meaning you can’t make payments with it. You need to obtain a purchase order or sales invoice to begin your payment process.

Can Proforma Invoices Be Cancelled?

Proforma invoicing is used to estimate the price of a transaction of goods or services, and since it isn’t a bill of sales, you don’t need to cancel it. As long as you don’t continue with a sale and don’t receive a purchase order or sales invoice, you don’t need to worry about cancelling your order.

Streamline your sales process

Although proforma invoices are not essential to every business, they can play an important role in your sales process.

While similar to both estimates and commercial invoices, a proforma invoice serves a unique purpose and can help you get the most out of your invoicing software.

Send out proforma invoices for your business with invoicing software like QuickBooks Online. You can easily switch between foreign currencies to accurately estimate your pricing for your customers worldwide and record transactions in various currencies. Try it free today.