What is a proforma invoice: Everything you need to know

Whether you like it or not, invoicing is an essential part of running a business. Issuing invoices to customers promptly and paying invoices from suppliers on time keeps cash flowing into the business and helps to maintain 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 (sometimes written as ‘pro forma invoice’). Here we will help you understand what this document is, how it differs from a standard invoice and when it can be used by your business.

What is a proforma invoice?

A proforma invoice is a bill of sale that is sent to a customer before goods and services are delivered by your business. It will usually contain details such as a description of the items being sold, their price and the total amount payable, along with any taxes and fees incurred. That gives the customer as precise an estimate as possible of the expected cost of an order. 

The big difference between a proforma invoice and a standard commercial invoice is that it is preliminary or provisional. That means the details are subject to change. It also does not 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 will be exposed to any unanticipated charges. That reduces the risk of payment disputes when commercial invoices are issued.

A few scenarios where proforma invoices are commonly used include:

• When 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

• 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 a quote?

In many respects, a proforma invoice has more in common with a quote than a commercial invoice. Quotes and proforma invoices are both used at similar times in the sales process and provide the customer with information about the transaction. However, there are also crucial differences between the two.

A quote provides information about what a customer can expect from a transaction before it has been agreed. 

A proforma invoice typically provides full and final details once the 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 requested and give an accurate indication of the total amount due. The proforma invoice is not a payment request and it can still be adjusted if the goods and services are under negotiation.

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 pass through customs quickly.

What should a proforma invoice look like?

A proforma invoice will usually include the following details:

• Date of issue

• Your contact details

• A description of the goods and services being provided

• The price of the goods and services being provided

• VAT and any other taxes or fees that apply

• Shipping costs, if any

• The total amount due

How do you create a proforma invoice?

A proforma invoice can be created using templates on Microsoft Word and Excel, although they will 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. No time-consuming updating or double checking of invoice numbers is required, making it a simple way to send quick and error-free invoices.

Can you pay on a proforma invoice?

A proforma invoice is not a legal document. That means the customer is not legally obliged to pay the amount listed. Instead, you must issue a commercial invoice with an invoice number to request payment. Proforma invoices can also not be used to reclaim VAT.

Streamline your sales process

Although proforma invoices are not essential for many businesses, they can become an important part of your sales process.

QuickBooks can help your business succeed

We hope you’ve found this article about proforma invoicing useful. If you want to learn more about how to make sure your business succeeds, visit our small business blog.