Proforma invoice – What is a proforma invoice?
A proforma invoice is a document sent to a buyer under certain circumstances – usually before all details of the sale are known.
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By definition, a proforma invoice is not a true invoice. However, there are many situations in which it’s better to send a proforma invoice than a finalised invoice.
For example, it's sometimes necessary to issue a sales document before the details of a sale are completely finalised. A proforma invoice declares the seller’s commitment to providing the goods or services specified to the buyer at certain prices but isn’t recorded in your accounts until a true invoice is issued to confirm the final prices and information.
You could also issue a proforma invoice if you need to provide a sales document for goods or services that you have not yet supplied, or to declare the value of goods for customs purposes.
The two most common ways to issue a proforma invoice are Word/Excel templates and invoicing software.
One way of creating a proforma invoice is to adjust an invoice template in Word or Excel to become a proforma invoice template by removing the invoice number and changing the title of the document.
You then have to save the proforma invoice, attach it to an email, and manually convert it to a finalised invoice.
A quicker, easier way to create a proforma invoice is with invoicing software. Invoicing software comes with a pre-built proforma invoice template and lets you send your proforma invoice to your customer in just a few clicks.
Invoicing software lets you create and send proforma invoices in less than a minute, and you can finalise your proforma invoices with a single click.
A proforma invoice is essentially a draft invoice. There is, however, a key difference between proforma invoices and invoices: whereas invoices are legal documents, proforma invoices are not. This has several implications:
Issuing a proforma invoice doesn’t mean that a customer is required to make any payments on the products or services listed.
A proforma invoice shouldn’t be recorded as an account receivable by the seller. Because it’s not a true invoice, it should not be registered as such.
A proforma invoice shouldn’t be recorded as an account payable by the customer since payment is not expected, meaning it’s not marked as such.
In many ways, a proforma invoice is similar to a sales quotation. Both proforma invoices and quotations let a customer know how much an order might cost, and both are sent at a similar point in the sales process – i.e. before a sale is entirely finalised. Usually, neither proforma invoices nor quotes are legally binding.
However, whereas a proforma invoice represents a customer’s commitment to purchasing particular goods or services, a quotation does not. Instead, a quotation simply recognises a customer's interest.
Because a proforma invoice is essentially a draft invoice, a proforma invoice template is almost identical to a standard invoice template. This means that your proforma invoice template should include:
Invoice date: the date that your proforma invoice is created
Seller details: the contact information for your business
Buyer details: the contact information of the customer
Description of the products/services: provide detailed information about the products and/or services
Subtotal: subtotals before tax or deductions
Tax: VAT to be added to the sale (if applicable)
Deductions: any deductions (such as CIS) that should be deducted before the total
Total: the total amount due from the customer on the invoice
Although there are recommended fields that you should include on a proforma invoice template, you have quite a lot of freedom to customise the design of your proforma invoices as these example proforma invoices demonstrate:
There are two main differences between a standard invoice template and a proforma invoice template:
Whereas all finalised invoices should include the word ‘Invoice’, a proforma invoice needs to specifically state ‘Proforma Invoice’.
All completed invoices need to be assigned a unique invoice number, but proforma invoices shouldn’t be assigned a number until they are finalised.
Companies registered for VAT need to make sure that their invoices contain details about how much VAT is being charged, and proforma invoices should also include this information.
However, even though they should state details about VAT, according to HMRC, proforma invoices aren’t considered commercial invoices or VAT invoices. This means that you cannot use proforma invoices you receive to reclaim VAT, and you should include the words 'This is not a VAT invoice' on any proforma invoices you issue.
If the recipient accepts the goods or services offered in the proforma invoice and you supply them, then you must complete the invoice to issue a proper VAT invoice within the appropriate time limit.