How does a proforma differ from other types of invoices?

Once the customer agrees to everything, then you deliver the goods and issue a formal invoice. The key point to remember is that a proforma is usually sent to a customer or client when they’ve committed to purchasing from you, but can’t be sent an official invoice because the final details still need to be confirmed. This is because customers aren’t required to pay the amount listed on the proforma, the total amount due isn’t recorded under the customer’s accounts payable or your accounts receivable, and you can’t use a proforma to reclaim VAT. In many ways, a proforma is closer to a quote or estimate than an invoice. Is a proforma invoice legally binding?Īlthough a proforma includes much, if not all, of the same information that appears on a final sales invoice, it doesn’t carry the same legal weight and shouldn’t be used for accounting purposes, or as a binding agreement. It is essentially a 'good faith' agreement between you (the seller) and a customer so the buyer knows what to expect ahead of time.įor example, if payment is required in advance to ensure financing is secured before you manufacture goods or supply a service, a proforma can be used to propose the details of the upcoming transaction. A proforma invoice includes a description of the goods, the total payable amount and other details about the transaction. Would you have put all your money on it? More to the point, if a customer asks for a proforma, do you know what it should and shouldn’t be used for and exactly how to send one? What is a proforma invoice?Ī proforma invoice is a preliminary bill or estimated invoice which is used to request payment from the committed buyer for goods or services before they are supplied. The correct answer is 'proforma invoice'.

'Which of the following cannot be used for accounting purposes?' Imagine facing this question on a game show:

Proforma invoice template doc