What a proforma invoice is for
A proforma is a preliminary bill. It sets out the goods or services, quantities, prices, shipping terms and payment terms before the sale is completed. Common uses:
- Prepayment. You want payment or a deposit before you ship or start production.
- Import licenses. Some countries require a proforma before a buyer can get an import license or foreign-exchange approval.
- Letters of credit. The buyer's bank uses the proforma's terms to open the credit.
- Purchase approval. The buyer's purchasing team needs a formal document to raise a purchase order.
What a proforma is not
A proforma isn't a final invoice. No sale has happened yet, so it doesn't belong in your sales ledger or accounts receivable; money received against it is usually recorded as a customer deposit until you invoice.
It isn't a tax invoice either. In VAT and GST countries, the buyer can't reclaim tax with it, and HMRC in the UK recommends marking pro forma invoices “This is not a VAT invoice”.
When to issue the final invoice
Issue the real invoice when the goods ship or the work is delivered. Keep descriptions, quantities and prices consistent with the proforma, quote the proforma number, and enter any prepayment as the amount paid so the balance due is correct. Under a letter of credit, the goods description on the commercial invoice must correspond with the credit, so copy it word for word. For international shipments, the final document is usually a commercial invoice.
Frequently asked questions
Is a proforma invoice legally binding?
Not as a bill. It's a statement of what you intend to supply and charge. Once the buyer accepts it or pays against it, though, its prices and terms usually become part of the deal, so check them carefully before you send it.
Can a buyer reclaim VAT or GST with a proforma?
No. In VAT and GST systems, input tax is claimed with a valid tax invoice, and a proforma isn't one. HMRC, for example, says pro forma invoices are not acceptable evidence for reclaiming VAT. Issue the proper invoice once the supply takes place.
Can I use a proforma invoice for customs?
Often, for shipments where no sale takes place, such as free samples, returns or goods sent for repair; carriers commonly ask for a proforma invoice in those cases. Some customs authorities also accept one temporarily when the commercial invoice isn't available. For a normal sale, customs expects a commercial invoice.
How should I number proforma invoices?
Use a separate series, such as PF-0001, so proformas never leave gaps in your invoice numbering. Many proformas are never paid, and that's fine. When one turns into a sale, print its number on the final invoice.
What's the difference between a proforma and a quote?
A quote is an offer the customer can accept or decline. A proforma usually comes after the terms are agreed and is laid out like the final invoice, so the buyer can arrange payment, financing or import paperwork.