What Is a Proforma Invoice?
Sep 1, 2021
A Quick and Easy Guide to Proforma Invoice
A proforma invoice is a preliminary sales document issued to the customer before the completion of the work. In simple words, a proforma invoice is:
- A commitment of goods or services that are yet to be delivered;
- Providing you with the lists of the work to be completed;
- Allowing you to input the quantity and the price you’re charging for the products or services.
Proforma invoice is not being used for any accounting purpose. It means that you cannot demand or request any payment using a proforma invoice.
We cannot say that the proforma invoice is proper because it can’t serve as an accounting record with the customer. It is also not a legally binding document for requesting the total amount of products or services. To fill a preliminary invoice for customs purposes or quotation, you need to create a proforma invoice using invoicing software.
When you use invoicing software, your proforma invoices can easily be well-formatted and labeled correctly. All you need to do is fill in the necessary details, click ‘save’ and send or print the proforma invoices.
Why is Proforma Invoice Created?
A proforma invoice does not carry an invoice number. We can say that it’s one type of uncompleted invoice, and so is not legally binding. Therefore, it doesn’t have much importance, like a proper sales invoice created for the sales process.
Every invoice that is recorded or serves an accounting purpose should carry an invoice number. When you invoice a proforma bill document, it can be likened to purchase orders, a quote, or an estimate of goods and services the seller has committed for the business process.
A proforma invoice is created before the job is completed, just a quote has been sent, or before the goods get delivered. With the quotes, companies can make sure that the client is well-informed about the estimated cost. So, that they can be prepared for the estimated cost for the particular project.
A proforma invoice is sent to the client to affirm that they and the seller are dealing with the same figures and agreement. The proforma invoice includes the price and quantity of goods and services and gives the customer a direction of where sales are going or where the job has progressed to.
What is the Purpose of a Proforma Invoice?
The proforma invoice template from any invoicing software serves as a record to follow up on the goods and services. When the template is sent to the customer, they have to agree on the price or the value included following the purchase approval process.
The next step that the small business owners need to perform is to send the customers with the goods or offer your services in the ways as agreed. Aside from this purpose, here are other valid usages of the proforma template of invoice:
- Once an invoice is issued to a customer or company, you’ll get an overall idea of the value of expected goods for stress-free delivery and custom purposes.
- It helps you when all the details of a commercial invoice are incomplete and just a cost estimate is provided.
- Other customers use a proforma invoice as a record for approving the purchase.
- In international trade, proforma invoices are sometimes needed for transactions or the amount due.
Difference Between Proforma Invoice and Invoice
An invoice is a standard document that explains the details of sales and issues for requesting the total amount. It also includes the company name, contact details, items or product descriptions, delivery process, shipping costs, terms, and conditions.
Now, what is a proforma invoice definition?
A proforma invoice is an estimate from the seller that informs the customer of what to expect, the proforma invoices also include the goods and service quantities with date and time. It also includes other information in the invoicing process about the business such as its name, address, items, terms, and accepted payment methods.
|Basis for Comparison||Invoice||Proforma Invoice|
|Meaning||A document that represents the list of services and products that is given to the customers from the seller to collect payment.||A proposal that is sent before the supply of goods or services or completion of a job contains what is being expected before delivery.|
|Issued||The invoice is issued before the amount is paid.||The proforma invoice is issued before the placement of the order taking place.|
|Purpose||To notify a customer of the total amount due, they are expected to pay after receiving the goods or services. It is also a legal document.||To notify the buyer of what is being expected.|
|Format||An invoice must have a business logo, contact information, payment terms and policies, information on the products.||Proforma invoices contain all information on an invoice but should be labeled “Proforma” boldly.|
|Accounting||Invoices are needed to make the required payment by the buyer and are kept as a record in accounts payable. It also serves as a reference for the future and can be used as a backup file when auditing.||With the proforma invoices, the customers will have an idea of how much budget they are spending on certain goods and services but are not useful for accounting purposes.|
Can Payment be Requested Using a Proforma Invoice?
The accounts payable section of a corporation the vendor is selling to may send an upfront payment on receiving an invoice proforma. After payment in advance, the seller knows how much to expect when he sends the actual invoice templates.
When the goods and services have been completely delivered, the actual invoice is referenced to avoid double payment by the firm.
Does a Proforma Invoice Help You Get Paid Quicker?
When you sell any product or service to the customer, they need to pay the bill within a specific time frame. In some countries, the default due date is 28 days after the original invoice is issued or a customer receives their products or services. The proforma invoice makes it easier for you to set the terms and get paid quickly.
The invoice due date is usually mentioned in the final invoice, but the proforma invoices can speed up the payment process by letting your customers know how much they owe. Proforma invoices give your customers time to make their minds and necessary arrangements for the payment.
In some companies, they have to take the permission of the managers and higher authorities, if they have received a proforma invoice prior to the actual invoice, they can take the payment permissions in advance. Such steps help businesses in getting paid through faster-invoicing processes.