performa invoice

Chapter 28

What Is a Proforma Invoice?

Author: Bhaval Patel

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 job. It explains the products and services yet to be received by the customer, it also states all the work yet to be completed and what you’re charging for.

Quick and Easy Guide to Proforma Invoice

The proforma invoice cannot be called a proper invoice because it can’t serve as an accounting record with the customer. It is also not a document for requesting payment. A proforma is just a preliminary invoice for customs purposes or quotation.

Proforma Invoice

A proforma invoice can be regarded as an uncompleted invoice, and it does not carry an invoice number. Therefore, it doesn’t carry much importance, like a proper sales invoice. Every invoice that is recorded or serves an accounting purpose should carry an invoice number. A proforma invoice can be likened to as a quote or an estimate of goods and services the seller has committed for sale.

It is issued before the job is completed or before the goods get delivered. A proforma invoice is sent to the client to affirm that they and the seller are dealing with the same figures and agreement. It includes 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.

Purpose of a Proforma Invoice

The Proforma invoice serves as a document to follow up on the goods and services. When the proforma invoice is sent to the customer, they have to agree on the price, after which you can send them the goods or offer your services. It is rather seen as an estimate of what is being expected instead of a payment request. Aside from this purpose, here are other valid usages of proforma invoice:

It is issued to a customer or company to state the value of expected goods for stress-free delivery and customs purpose

Proforma invoice can help when all the details of a commercial invoice are incomplete

Other customers use a proforma invoice as a document for approving the purchase.

In international trade, proforma invoices are sometimes needed for transactions.

Difference Between an Invoice and Proforma Invoice

An invoice is a standard document that explains the details of sales and issues for requesting payment; a proforma invoice is an estimate from the seller that informs the customer of what to expect, it also includes the goods and service quantities with date and time.

Difference Between an Invoice and Proforma Invoice

 

Basis for Comparison

Invoice

Proforma Invoice

Meaning

A commercial document issued to a buyer stating full details of sales and used for requesting a payment

A proposal that is sent before the supply of goods or completion of a job contains what is being expected before delivery

Issued

Invoice is issued before payment

Proforma invoice is issued before placement of order taking place

Purpose

To notify a customer of the total amount, they are expected to pay after receiving the goods. 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 goods.

A proforma invoice contains all information on an invoice but should be labeled “Proforma” boldly.

Accounting

An invoice is needed to make the required payment by the buyer and is 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 a proforma invoice, the customer has an idea of how much budget they are spending on certain goods and services but is not useful for accounting purposes.

Can Payment be Requested Using a Proforma Invoice

The accounts payable section of a company the vendor is selling to may send an upfront payment on receiving a proforma invoice. After payment in advance, the seller knows how much to expect when he sends the actual invoice.

When the goods and services have been completely delivered, the actual invoice is referenced to avoid double payment by the company.

What Is a Preliminary Invoice?

Preliminary invoices are documents that notify the buyer about terms of sale before business commences. They are created to help the buyer and seller check and confirm the actual invoice. Preliminary invoices are also proforma invoices and are not useful for accounting purposes.

It is not compulsory to always send a proforma invoice, but in some cases, the buyer has to be in agreement with the seller on the price, quantity, duration of the business and other terms. It helps the seller of goods get paid on time because the buyer would have to make plans on receiving the preliminary invoice. This invoice can be used to calculate profits made at the year ending.

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