Proforma invoice – What is a proforma invoice?
A proforma invoice is a document sent to a buyer under certain circumstances – usually before all details of the sale are known.
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By definition, a proforma invoice is not a true invoice. However, there are many situations in which it is better to send a proforma invoice than a finalised invoice.
For example, it's sometimes neccessary to issue a sales document before the details of a sale are completely finalised. A proforma invoice declares the seller’s commitment to provide the goods or services specified to the buyer at certain prices, but is not recorded in your accounts until a true invoice is issued to confirm the final prices and information.
You could also issue a proforma invoice if you need to provide a sales document for goods or services that you have not yet supplied, or to declare the value of goods for customs purposes.
How to issue a proforma invoice
The two most common ways to issue a proforma invoice are Word/Excel templates and invoicing software like Debitoor.
Issue a proforma invoice with Word or Excel
One way of creating a proforma invoice is to adjust an invoice template in Word or Excel to become a proforma invoice template by removing the invoice number and changing the title of the document.
You then have to save the proforma invoice, attach it to an email, and manually convert it to a finalised invoice.
Issue a proforma invoice with invoicing software
A quicker, easier way to create a proforma invoice is with invoicing software like Debitoor. Invoicing software comes with a pre-built proforma invoice template and lets you send your proforma invoice to your customer in just a few clicks.
Invoicing software lets you create and send proforma invoices in less than a minute, and you can finalise your proforma invoices with a single click.
Proforma invoice vs. invoice
A proforma invoice is essentially a draft invoice, and there are a lot of similarities between invoices and proforma invoices. There is, however, a key difference between proforma invoices and invoices: whereas invoices are legal documents, proforma invoices are not. This has several implications:
- Issuing a proforma invoice does not mean that a customer is required to make any payments on the products or services listed.
- A proforma invoice should not be recorded as an account receivable by the seller. Because it is not a true invoice, it should not be registered as such.
- A proforma invoice should not be recorded account payable by the customer since payment is not expected, meaning it is not marked as such.
Proforma invoice vs. quotation
In many ways, a proforma invoice is similar to a sales quotation. Both proforma invoices and quotations let a customer know how much an order might cost, and both are sent at a similar point in the sales process – i.e. before a sale is entirely finalised. Usually, neither proforma invoices or quotes are legally binding.
However, whereas a proforma invoice represents a customer’s commitment to purchasing particular goods or services, a quotation does not. Instead, a quotation simply recognises a customer's interest.
Proforma invoice template
Because a proforma invoice is essentially a draft invoice, a proforma invoice template is almost identical to a standard invoice template. This means that your proforma invoice template should include:
- Invoice date: the date that your proforma invoice is created
- Seller details: the contact information for your business
- Buyer details: contact information of the customer
- Description of the products/services: provide detailed information about the products and/or service
- Subtotal: subtotals before tax or deductions
- Tax: VAT/GST to be added to the sale (if applicable)
- Deductions: any deductions (such as CIS) that should be deducted before the total
- Total: the total amount due from the customer on the invoice
You should also include details of any discounts you will provide, as well as any terms and conditions.
Although there are specific requirements for the information that you should include on a proforma invoice template, you have quite a lot of freedom to customise the design of your proforma invoices as these example proforma invoices demonstrate:
Invoice template vs. proforma invoice template
There are two main differences between a standard invoice template and a proforma invoice template:
- Whereas all finalised invoices should include the word ‘Invoice’, a proforma invoice needs to specifically state ‘Proforma Invoice’.
- All completed invoices need to be assigned a unique invoice number, but proforma invoices should not be assigned a number until they are finalised.
Proforma invoice and VAT
Companies registered for VAT need to make sure that their invoices contain details about how much VAT is being charged, and proforma invoices should also include this information.
However, even though they should state details about VAT, according to HMRC, proforma invoices are not considered commercial invoices or VAT invoices. This means that you cannot use proforma invoices you receive to reclaim VAT, and you should include the words 'This is not a VAT invoice' on any proforma invoices you issue.
If the recipient accepts the goods or services offered in the proforma invoice and you in turn supply them, then you must complete the invoice to issue a proper VAT invoice within the appropriate time limit.
Proforma invoice and GST
In Australia, companies registered for GST must issue tax invoices instead of standard invoices. There are a few differences between tax invoices and standard invoices, including how the invoice is labelled.
If you run Australian business that is registered for GST, you can still issue proforma invoices. However, you need to make sure that it is clearly labelled as a ‘Draft Tax Invoice’. If you run an Australian business that is not registered for GST, you should use the label ‘Proforma Invoice’.
Proforma invoices in Debitoor
In Debitoor, our easy-to-use proforma invoice template is a pre-built form that allows you to create proforma invoices quickly and professionally in just a few simple steps:
- After signing in to your account, click the Invoices tab and hit the blue button, ‘New Invoice’.
- Add your details, and enter the details of a new customer or select a saved customer from the drop down menu and adjust the design to represent your company's brand.
- Add the product or service information for that order in the item lines.
- Click ‘Save’ instead of ‘Complete Invoice’.
When saved, it will appear in the Drafts list. These drafts are your proforma invoices.
You can also use our free proforma invoice template for Word and free proforma invoice template for Excel. Simply download the invoice template, fill in your information and change ‘Invoice’ to ‘Proforma Invoice’.