If you run a business, you have probably issued a proforma invoice to a customer. However, proforma invoices differ greatly from a standard invoice. In this article, I will explain what proforma invoices are, how they differ from standard invoices, and if you can accept payment on a proforma invoice.
The simple answer is no, a payment cannot be made on a proforma invoice. However, in order to understand why we will need to dive into the topic of how proforma invoices and standard invoices differ.
What is the difference between a proforma invoice and a standard invoice?
A proforma invoice is a document sent to the customer before the details of the sale have been finalised. It will usually have the same format as a standard invoice, however, it will include a ‘proforma invoice’ label.
An invoice, on the other hand, is a document issued to the customer once all of the details have been finalised and a payment date is set. It is a legal document describing the products and services being sold and the amount owed.
Although both documents look very similar, a proforma invoice will not include an invoice number, but will include the ‘proforma’ label.
A proforma invoice is essentially a ‘draft invoice’ so it doesn’t have the same legal importance as a standard invoice. Therefore, this means that:
- The customer is not legally required to pay the amount on a proforma invoice
- Proforma invoices cannot be used to reclaim VAT
- The amounts stated on a proforma invoice will not be included on accounting reports
Why payments cannot be made on proforma invoices
For starters, a proforma invoice is not a legal document. This means that the customer has no legal obligation to pay the amount on the proforma invoice.
A full invoice needs to be issued in order to accept payments, link the payment to the invoice, and have the payment recorded in your accounting reports such as the balance sheet and profit and loss statement.
Another reason is that a proforma invoice does not meet the requirements for an invoice. An invoice must include an invoice number, and invoice label, which do not appear on a proforma invoice.
Why would I issue a proforma invoice if I cannot accept payment?
You may be wondering why you would need to issue a proforma invoice if the customer is not legally required to pay it. The reason is that the customer has committed to the sale, but has not yet confirmed the final details. In other words, a sale will happen, but the invoice may change.
Proforma invoices are issued at a different stage of the sale process. Proforma invoices are issued when the sale is ‘waiting to be finalised’, whereas standard invoices are issued when the sale is ‘confirmed’.
Why should I issue a proforma invoice instead of a quote?
Again, the answer comes down to which stage the sale is in. A quotation is usually issued when a customer is making an enquiry but has not committed to the sale, and may not make a purchase at all. With a proforma invoice, the customer has already committed to the sale but has not yet confirmed the details.
Using invoicing software to create and edit proforma invoices
Invoicing software can help you create proforma and standard invoices, send them to your customers, and help you accept payments.
With Debitoor, you can save customer and product lists so you can easily fill out the information that goes on your documents. You can also customise your documents to add logos, images, and banking information to set you apart from your competition.
You can create and send a proforma invoice with Debitoor in under a minute! Simply create a new invoice, enter the details of the sale, click ‘Save’, and send the proforma document to the clients’ email.
Here is an example of a proforma invoice created with Debitoor:
If the proforma invoice needs to be edited in the case that the details have changed, this can quickly be done in a few clicks.
If the customer confirms the details on the proforma invoice, you can then convert it into a full invoice and send it to their email.
You can also connect certain payment providers to add a ‘Pay Now’ button directly to the invoice so you can accept payment instantly once the customer securely enters their credit card details.
With Debitoor, you can create a professional customised proforma invoice in under a minute. Feel free to test it out on our 7-day free trial.