What is a proforma invoice and how do you create one?
When it comes to accounting, there are a variety of different documents you need to be aware of, including invoices, credit notes, proforma invoices, quotations, and many more. Understanding all of these documents may seem overwhelming, but each document has a specific purpose and it is essential that you issue the correct document to your clients.
This article outlines what a proforma invoice is, when it should be issued, and how it fits into the sales process. We have also provided free, downloadable proforma invoice templates in Word, Excel, and PDF formats.
A proforma invoice is a preliminary or “draft” invoice issued prior to the details of the sale being finalised. It is not a legally binding document, meaning that payment is not required on a proforma invoice, but rather provides the customer with an outline of the sale to be confirmed.
Proforma invoices look very similar to standard invoices but exclude certain information. It is usually issued when the customer has confirmed that a sale will occur but needs to finalise the details. They can also be issued as customs documents to declare the value of goods that have not yet been supplied.
Proforma invoices are not identified as accounting documents, and therefore cannot be recorded in your books as accounts receivable. Only standard invoices can be recorded as such.
Although they look similar, proforma invoices and invoices have a different purpose. An invoice is a legally binding document that is issued once a product or service has been supplied and payment is now due.
On the other hand, proforma invoices are not legally binding accounting documents. It is instead issued to give the customer the details and price of the transaction if they were to not make any further changes. It can be issued as a preliminary invoice and later converted into a standard invoice once the goods or services have been supplied and payment is owed.
Again, these two documents may seem very similar but are issued at different stages of a sale. Quotations are sent to customers who initially contact you for a price estimate. They have not shown any real interest in purchasing, but are at the beginning stages of choosing a company to go with.
A quote is an estimated price of what the customer is looking for, which can later be converted into a proforma invoice or standard invoice.
A proforma invoice comes later in the sales process than a quotation. Once the customer has expressed interest in making a purchase with your company, they may ask for a proforma invoice while they confirm the final details of the sale.
For example, let’s say that you own a custom t-shirt business and a potential customer reaches out to you for the first time asking how much it would cost to create 25 custom t-shirts with their company logo.
He didn’t provide t-shirt sizes, so you issue a quotation divided up into the 3 sizes you offer and explain to the potential customer that the price may differ based on the t-shirt sizes he requires.
The customer replies saying that you have the best prices and he would like to purchase. However, he will need to confirm the t-shirt sizes with his staff but estimates it will be 5 small, 10 medium, and 10 large.
Since the customer has expressed interest in purchasing but needs to confirm the final t-shirt sizes, you issue a proforma invoice with the estimate sizes he provided.
The customer later replies with the final numbers and confirms that they are ready to pay. You issue a standard invoice with the correct finalised t-shirt sizes to the customer once the t-shirts have been shipped.
Although there are no requirements for proforma invoices outlined by the UK Government, proforma invoices should include certain information. Unlike standard invoices, proforma invoices should not have an invoice number. However, best practice would be to include the majority of the legal invoice requirements. This includes:
Your name/business name and address
Your customer’s name/business name and address
The proforma invoice issue date
A description of the products/services being sold
The amounts being charged
Any VAT (If applicable)
The total amount due
It would also be beneficial to include a “Proforma Invoice” title so the customer knows that payment is not due. If you are a VAT registered business, HMRC also recommends that you clearly state “This is not a VAT invoice” on the document.
If Microsoft Word is your software of choice when it comes to creating invoices, we have provided free, downloadable proforma invoice templates below. We also have standard invoice templates that you can download from the article "Invoice templates for Word and Excel".
With our VAT and non-VAT proforma templates, you can modify it with your business logo and details such as your website and bank account number.
With the Word templates, you will need to update the totals manually, whereas with the Excel templates you can include formulas so that the totals update automatically. You should try both formats to see which one will benefit your business accounting more.Download Word proforma template (non-VAT)Download Word proforma template (VAT)
Our Excel templates use formulas to automatically update the prices and totals. We would recommend Excel templates rather than PDF or Word to minimise your calculations and avoid mistakes.
Below, you can download our free, customisable Excel proforma templates. The document has two different tabs, one for non-VAT registered businesses as well as one for VAT registered businesses.Download Excel proforma templates
If you prefer to print and write your invoices by hand, we have provided VAT and non-VAT PDF templates for you to download. Since PDF’s cannot be edited, this format is extremely limited in capabilities. We would suggest that you download one of the Word or Excel templates first, edit it with your business information, and then convert it into a PDF that you can print.Download PDF proforma template (non-VAT)Download PDF proforma template (VAT)