A quick guide to proforma invoices

Invoices can be a powerful tool for businesses selling recurring services, products or those that charge large sums. There’s a few different types of invoices your business can utilise but this quick guide will specifically cover a category called proforma invoices.

We’ll break down:

• What is a proforma invoice?
• The difference between a proforma invoice and regular invoice in the UK
• What is the purpose of a proforma invoice?
• What information is required on a proforma invoice?

What is a proforma invoice?

A proforma invoice is a type of invoice that’s used as a provisional bill of sale, to be sent to a customer before the goods or services have been delivered.

How does a proforma invoice differ from a regular invoice?

This timing is the main difference between a proforma invoice and a regular invoice. A regular invoice, otherwise just known as an invoice, would be sent after the goods or service has been delivered. Another key difference is that a proforma invoice isn’t a legal document and has no fiscal value, with no means of payment included. It’s basically a terms of sale that can be amended because the prospective sale hasn’t yet completed.

You may wonder how a proforma invoice differs from a quotation, something else that can be sent before the sale is completed. The main distinction is that a quotation doesn’t come with any kind of obligation and is much less formal than a proforma invoice, so it’s best used earlier on in the process.

A proforma invoice is considered to be more binding even if it is not a legal invoice, and it’s usually issued after the customer has committed to making the purchase, even if the final details haven’t been confirmed yet.

What is the purpose of a proforma invoice?

So, when would you use a proforma invoice, rather than a quotation or an invoice? They could be used as a show of good faith and a step beyond a mere quotation when it comes to estimating the final cost, while still leaving room for change.

They can also be useful in jobs where the project scope might increase because it is possible to adapt them rather than replace a formal invoice, which could create unnecessary additional admin work.

Having a proforma invoice in place until the details are finalised and the sale is completed is the first step and then you can create and send a regular, legally binding invoice to request the payment. This can help streamline the quote-to-cash process as well as saving on time and costs.

What information is required on a proforma invoice?

Now we’ve covered what proforma invoices are and how they differ from regular invoices, let’s look at what information is required on a proforma invoice. The simple answer is that there is no specific guidance for what must be contained, but generally, it’s easier for you if they are similar to your actual invoices.

One difference between them is that proforma invoices don’t include invoice numbers, something that is essential on legal invoices, and this is because you wouldn’t be including these in your accounts. Instead, you need to make sure you label them as ‘proforma’ so there is no confusion at either end.

So what is required on a proforma invoice? Usually the following would be included:

• The title ‘proforma invoice’
• Buyer’s name, company name, billing address and shipping address
• Your details
• The payment terms
• The date the proforma invoice was created and when it expires
• A description of the goods or service
• The quantity of goods or services
• Any applicable discounts
• VAT and other taxes
• The total amount
• Your payment information (even though you are not requesting money at this stage)

A proforma invoice is generated by the buyer or the seller before the goods or services have been supplied and there are several ways to create them. Cloud accounting software will have templates available, though the methods of creating them can vary from platform to platform. You can also download templates that you can amend, or you can base them on your existing invoice templates with the necessary tweaks.

Whether or not you use proforma invoices will depend on the kind of business you run, the products you buy and sell or the services you offer. They’re not always necessary, as some more straightforward sales types can go straight to the regular kind of invoice, but they have their own unique purpose in transactions that have more chance of complications and revisions.