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What Is a Pro forma Invoice

A proforma invoice template is an estimation that is sent in advance of shipped goods for approval by the customer. It can also be used as a quote, giving the customer a sense of what a product would cost before going through with the order. A pro forma invoice is simply a description of an impending transaction, based on an order placed by the buyer.

  1. It is handy in international trade, where the final details may take time due to shipping, customs, and other factors.
  2. Don’t enter the invoice into your accounts receivable ledger, as the sale is yet to be confirmed and so no one owes you anything yet.
  3. The final sales invoice, with the transaction date, is the actual time of supply and, therefore, the tax point for claiming VAT/GST.
  4. This invoice includes the price, delivery date, and payment terms for the 100 laptops.
  5. It is often used for review and approval within a business before it is sent to the customer.

In that sense, a proforma invoice is more like a sales quote than a final sales invoice. That means you shouldn’t record the total amount due under your accounts receivable or use the proforma invoice to reclaim value-added tax (VAT). A proforma invoice and a final sales invoice share a lot of the same information.

In short, you should issue a proforma invoice before the details are finalised and an invoice when that sale is finalised. A proforma invoice looks very similar to an invoice, but what differentiates the two is that a proforma invoice’s terms of sale can still be changed. This means that it only applies to sales that have not yet been completed. If the customer agrees, we will deliver the item and issue a formal invoice. It is because of this disparity that a Commercial Invoice is typically issued after the goods have been delivered or shipped to ensure it accurately represents the final number of goods shipped.

A seller can create a proforma invoice anytime at the request of the buyer, so both parties know exactly what to expect from one another. At this point, ABC Clothing could still salvage the sale by rushing to meet the delivery deadline, voiding the original invoice, and creating a new one with prices and payment terms the buyer agrees to. Buyers and sellers can use a proforma invoice in good faith to ensure that the seller delivers the requested goods to the buyer after payment.

Proforma invoice vs. invoice:

In contrast, a standard or official invoice is recorded in your accounts payable or accounts receivable to be used for accounting purposes in case of an audit. The proforma invoice is like a quotation, is not legally binding, and is sent before the sale and details have been confirmed. A sales invoice can also be a tax invoice since it includes VAT/GST and other taxes. Don’t enter the invoice into your accounts receivable ledger, as the sale is yet to be confirmed and so no one owes you anything yet.

A pro forma invoice isn’t a tax invoice

Most customs agencies require the value of an item, as well as details on its weight, packaging, shipping costs, and more. Unlike a final, sales, or tax invoice, proformas are technically not completed since they don’t have a legally-required invoice number. Think of them as finalized courtesy quotes that prevent unexpected surprises or disputes down the line. They also give prospective clients a general overview of a sale, including prices, timelines, and terms. Unlike an official invoice, a pro forma invoice is simply used to prevent misunderstandings about the specifics of a transaction, such as the amount due.

For the PDF version, to ensure the ‘Total’ calculates correctly, enter the ‘sales tax’ in decimal format. A quote provides information about what a customer can expect from a transaction before it has been agreed. If you want to jump right into creating your own invoices, head over to our invoice generator. If the pro forma will be used for customs, fill out the Reason for Export and sign the document. Sometimes you'll need to include additional lines of details regarding a particular product.

It confirms certain details and makes it clear that others are yet to be confirmed. A firm may use a pro forma invoice if the terms of the sales contract specify that full payment is not due until the buyer receives certain goods. Businesses generally only send a pro forma invoice when a customer requests one. Even then, it generally comes after a quote has been accepted and both parties are committed to the deal. Customers request them to support administrative tasks such as costing out import duties or satisfying their internal procurement department.

Downloadable Free Pro Forma Invoice Templates

However, it should clearly state that it is a proforma invoice to avoid confusion with a final sales invoice. Tax and proforma invoices differ primarily in their legal and tax implications. A tax invoice is a legal document that serves as proof of a sales transaction and is necessary for the buyer to claim input tax credits. A proforma invoice, however, is an initial bill sent before the delivery of goods or services and cannot be used for tax purposes as it does not constitute an actual sale transaction.

In contrast, the pro forma invoice can be paid as a final invoice once everything is agreed upon and complete. Remember, these invoices are not legally binding unless attached to a contract. Additionally, some businesses might require proforma invoices for their internal purchasing approval process. However, the buyer still needs an official, legally binding invoice to use for their accounts payable records. While an invoice is official and legally binding, a proforma invoice simply sets expectations for both the buyer and seller.

These are important documents that are used to officially confirm all order and product information to avoid any confusion or problems with the supply and delivery of products. Any additional information agreed upon between the buyer and seller can be included on these documents. Businesses that are scaling fast and looking for ways to improve their billing processes should definitely consider using proforma invoices. Unlike an invoice that has a predefined set of fields to be included, a proforma invoice could contain anything that’s relevant at the time of creating it.

In the accounts payable process, a proforma invoice is used to create a sale, while an official invoice confirms the sale. Sometimes a bank will send a letter of credit to a seller on a buyer’s behalf guaranteeing that the seller will receive payment for goods or services on a particular day. It’s maybe the furthest you can get from a proforma invoice, which doesn’t promise or guarantee anything. A sales receipt proves that a payment has been made, while a proforma invoice doesn’t prove anything—it just quotes a potential future purchase price.

You can easily switch between foreign currencies to accurately estimate your pricing for your customers worldwide and record transactions in various currencies. 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. A proforma invoice is quite similar to the final sales invoice and contains all the same details.

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