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PROFORMA INVOICE
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Proforma Invoice
A proforma invoice provides clarity and transparency before a sale by outlining estimated costs, quantities, and terms, allowing buyers to review pricing and approve transactions with confidence.
A proforma invoice is a preliminary billing document sent to a buyer before the actual sale takes place. It provides a clear estimate of the goods or services to be delivered, including prices, quantities, taxes, and other important terms. Businesses use proforma invoices to communicate costs upfront and avoid misunderstandings later.
Unlike a final invoice, a proforma invoice does not demand payment. Instead, it acts as a formal quotation that helps both the buyer and seller agree on the transaction details before proceeding.
What Is a Proforma Invoice?
A proforma invoice is an advance document issued before delivering goods or services. It outlines what the final invoice will look like once the transaction is completed. Because of this, proforma invoices are widely used in trade, exports, service agreements, and custom orders.
Although it resembles a regular invoice in format, a proforma invoice is not legally considered a tax invoice and does not record revenue.
Why Businesses Use Proforma Invoices
Proforma invoices help businesses set expectations clearly. They allow buyers to review pricing, approve budgets, or arrange payments in advance. This is especially helpful when dealing with new clients, large orders, or international transactions.
- Clarifies pricing before delivery
- Helps buyers approve budgets
- Reduces billing disputes
- Supports advance payments
- Useful for customs and exports
Proforma Invoice vs Final Invoice
| Aspect | Proforma Invoice | Final Invoice |
|---|---|---|
| Purpose | Provides an estimate or quotation | Requests payment |
| Payment Demand | No | Yes |
| Legal Status | Not a tax document | Legally valid for accounting |
| Revenue Entry | Not recorded | Recorded in accounts |
| Usage Stage | Before sale or delivery | After sale or delivery |
What Information Does a Proforma Invoice Include?
A well-prepared proforma invoice contains most of the details found in a final invoice, except for legal tax compliance elements. Including clear and complete information helps avoid confusion and speeds up approvals.
- Seller and buyer details
- Proforma invoice number and date
- Description of goods or services
- Quantity and unit price
- Subtotal and estimated taxes
- Total estimated amount
- Delivery and payment terms
When Should You Use a Proforma Invoice?
Proforma invoices are most useful when pricing needs approval before work begins. They are commonly used in international trade, service contracts, and large custom orders where costs must be confirmed upfront.
- Before receiving advance payments
- For export and import documentation
- When quoting large or custom orders
- For internal budget approvals
How to Create a Proforma Invoice
Step 1: Add Business and Client Details
Enter your company information and customer’s name, addresses, and tax information clearly.
Step 2: List Products or Services
Describe the goods or services, including quantity and pricings.
Step 3: Calculate Totals
The tool will auto calculate subtotals, estimated taxes, and the total payable amount for reference.
Step 4: Mention Terms Clearly
Include delivery timelines, payment terms, and a note stating that the document is a proforma invoice.
Step 5: Review and Share
The tool will auto generate the proforma invoice preview. Double-check all details before sending the proforma invoice to the client for approval.
Proforma Invoice in Accounting
From an accounting perspective, a proforma invoice does not impact financial statements. It does not record income, tax liability, or receivables. Only the final invoice affects accounting records once the transaction is completed.
However, proforma invoices remain useful for planning, forecasting, and documentation.
Frequently Asked Questions
What is a proforma invoice?
A proforma invoice is a preliminary document that outlines estimated charges before a sale or service is completed.
What is the purpose of a proforma invoice?
The purpose of a proforma invoice is to inform the buyer of costs and terms in advance.
Is a proforma invoice legally binding?
A proforma invoice is not legally binding and does not demand payment.
Can a proforma invoice be used for payment?
It is usually used for reference or advance approval, not as a final payment request.
Is a proforma invoice the same as a quotation?
A proforma invoice is similar to a quotation but is more detailed and formatted like an invoice.
Conclusion
A proforma invoice plays an important role in setting expectations before a sale is finalized. By clearly outlining estimated costs, quantities, and terms in advance, it helps businesses maintain transparency and allows buyers to review and approve transactions with confidence. Using the right invoicing tool makes this process faster, more accurate, and easier to manage.
To create professional invoices quickly and without complexity, you can also use OmniTools’ free online invoice generator, which helps you generate professional invoices directly from your browser while keeping your data private and secure.
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