As a business owner, you've probably heard of the term "proforma invoice. So, what exactly is a proforma invoice? Continue reading to learn what they are and what they include, how they differ from standard invoices, and examples.
What exactly is a proforma invoice?
The Definition
A proforma invoice is one that is issued and provided by the seller prior to the delivery of the product or service in question. They are incomplete invoices, simply estimates or quotes outlining the products and services that a vendor agrees to sell.
It's Purpose
Before generating an official invoice, proforma invoices are frequently used to offer buyers a full description of their transaction. It can aid in ensuring that the seller and buyer are on the same page about the agreement (e.g. price of the goods and services). A proforma invoice also provides prospective clients with an idea of the costs of your business products and services.
Proforma invoices can help in the sales process. The customer agrees to the cost after you have issued and submitted a proforma invoice and you subsequently furnish them with the products or services. They are also commonly used to indicate the value of items for customs, internal purchase approvals, and when you do not yet have all of the data necessary for a commercial invoice.
What precisely is the distinction between a Proforma Invoice and a Standard Invoice?
- The purpose of a proforma invoice, as opposed to a final invoice, is purely formal. It is not recorded in the books and is not paid to the recipient's account, but it might be used to present the buyer with a summary of their order, for example. A standard invoice is needed to seek payment.
- In contrast to a standard invoice, a proforma invoice does not provide extensive information about the purchase. While invoices include information about the customer, seller, PO number, place of purchase, and other posts, proforma invoices just need a few facts to represent the whole order: total cost and quantity.
- A proforma invoice informs the agent/buyer about the specifics of the products that have yet to be delivered. An invoice is a business document issued to the customer that contains information about the seller's items or services.
- A proforma invoice is issued before an order is placed. In contrast, a standard invoice is sent prior to payment.
When should a Proforma invoice be used?
Here are two major reasons why your business might need a Proforma invoice:
Cost Estimations: Proforma invoices can serve as a "good faith agreement between buyer and seller. They can serve as a breakdown of the products or services, as well as an indication of the total amount due. As a result, proforma invoices may be an excellent tool for providing a cost estimate when, for example, the sales process is incomplete and discussions are ongoing.
International Shipping: Proforma invoices are commonly used in international shipping to indicate the value of an item in order to help it pass through customs quickly and deliver to your customer on time. This is due to the fact that proforma invoices frequently include information on shipping charges, packing, weight, and other shipping factors.
What information should a Proforma invoice contain?
There is no standard format for proforma invoices. It merely requires enough information to detail the entire order, including the total cost and quantity. Many businesses choose to have the proforma invoice look exactly like the final sales invoice. As a result, proforma invoices may include:
- Date of issuance
- Buyer and seller contact information
- Estimated total payment due
- Shipping fees
- Other taxes and duties
- Specifics about the goods or services offered
Can a proforma invoice be paid?
Proforma invoices are not official documents since they do not fulfill the standards for an official invoice. As a result, customers are not required to pay for products or services indicated on a proforma invoice. A proforma invoice, like a standard invoice, cannot be used in your accounting process. Only once a final invoice is produced can the business take payment from the client, link the payment to the invoice, and record the payment in its accounting reports. As a result, a proforma invoice cannot be paid.
Template and Examples of Proforma Invoicing
Online, you may get a wide range of proforma invoice templates. Another option is to rename your invoice template "Proforma Invoice," which you can get online or through an online invoicing system like Blinksale, and make the necessary changes.
An example of a Proforma Invoice template is shown below:
Proforma Invoicing Frequently Asked Questions
Is it lawful to provide a proforma invoice?
A proforma invoice, while more binding than a quote, is not legally binding in the same way that a final invoice is.
Is a proforma invoice the same as a tax invoice?
The answer is no. A tax invoice is used primarily in international shipments to represent the foreign sales tax applied to commercial items, whereas a proforma invoice is a generic invoice detailing the products or services to be delivered to a customer.
Is it possible to claim VAT on a tax invoice?
A tax invoice generally includes the name of the business or individual to whom the products or services were provided. This implies that the invoice would not normally be in your business since the supply was not made to it. In general, it shouldn't be possible to collect VAT on invoices issued in the name of third parties.
Did you know?
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