We’ve already touched on the purpose and format of quotes and how they can be an important part of your invoicing process. So what exactly is the point of a proforma invoice and what is the difference between it and a quote? Can you use both?
Let’s first clarify what a proforma invoice is: a proforma is not an official invoice. Although it is almost indistinguishable from an invoice (it is, in fact, identical in all ways with the exception of the title ‘proforma’ or ‘draft’ and that it has no invoice number), their value and use is very different.
Taking a closer look
In addition to the title, proforma invoices and official invoices have a few other important, but perhaps not so obvious differences:
A proforma invoice has no fiscal or accounting value. Tax authorities and accountants will tell you that a proforma invoice does not have any legal standing in place of an official invoice. It therefore serves neither as proof of payment nor as a substitute for an invoice.
Because of this, it is not recorded as an invoice in your accounts, nor does it receive an invoice number. Invoice numbering is a crucial part of managing your accounts and ensuring proper invoicing practises (that invoice numbers are sequential and without gaps).
So is a proforma invoice actually worthless? No, because each and every communication that you have with a customer is important to your business relationship, promoting your brand, and establishing your professionalism.
In other words, while a proforma might not have any legal or fiscal value, it can be a valuable document when it comes to your interaction with your customers, depending on your business and how you prefer to handle orders.
When to use a proforma invoice
In principle, a proforma invoice can be used as a draft invoice. It can therefore be presented to your customer before being finalised and presented for payment purposes.
Some freelancers and small business owners use proforma invoices instead of quotes, as they can function similarly. Proforma invoices are commonly used in the following scenarios:
As proof of an order that has not yet been fulfilled; that is to say that the customer has not yet received the goods service, nor have they paid. To specify the conditions of a sale or transaction. As a substitute for a commercial offering (such as a quote) when dealing with a repeat customer.
Proforma invoices in invoicing software
Invoice software like Debitoor provides invoice templates in order to ensure that you have included all of the necessary details to create invoices that meet all regulatory requirements. Want to create a proforma invoice instead? In Debitoor, simply click ‘Save’ instead of ‘Complete invoice’ and use the Draft version as your proforma. You can download the PDF or can email it directly to your customer.
To add a little extra security and ensure that your proforma is not mistaken for an official invoice, you can include this in the ‘Notes’ or ‘Terms’ box simply by writing something such as: ‘Not a VAT invoice’.