Proforma Invoices: Definition, Importance, and Sample Format
A proforma invoice is a contract sent to the client before the start of the job. It contains a list of the work done, the quantity, and the price to charge for the service or goods, but it also includes a promise for services and goods that still need to be provided. It is a temporary document, and an official one will be issued afterward. Although proforma invoices are frequently used, it is simple to mistake them for standard invoices. This article seeks to demystify the distinctions between a proforma invoice and an invoice, illustrate the usage of proforma invoices, and explain their meaning using examples.
What Is Proforma?
Proforma invoices are estimated or preliminary invoices given to a buyer before the products or services are delivered to request payment. They include the item's description, price, and other transaction information. Proforma invoices are quotes describing the goods or services the seller has committed to sell rather than the how legal invoices' needed invoice numbers. This is a "sincere" agreement between the buyer and the seller, informing them beforehand what to anticipate.
Purpose Of Its Use?
When a seller has spoken with the buyer about the sketchy details of a sale but cannot provide an official invoice, they will issue a proforma invoice. It ensures that the parties to the contract, the seller and the buyer, are on the same page and concur on the terms and conditions of the sale. It gives prospective clients a general idea of what goods and services cost. Proforma invoices are provided to customers to indicate the worth of the items or inform them of the type, caliber, amount, and description of the products the company has sold. Proforma invoice guarantees a straightforward delivery procedure, even at customs, particularly for imported items.
Why Do Companies Use Proforma Invoices?
Proforma invoices are not payment request forms or binding contracts. They are used to:
- Inform customers about the deliverables and what to anticipate in advance
- Propose the rate and total payable amount
- Verify the supplier's legitimacy
- Obtain a commitment to pay from customers
- Ensure visibility and save time and money
- Declare the value of the goods/services to customs agencies for efficient delivery
- Start the internal purchasing approval process.
How To Create A Proforma Invoice?
The process you used to create a standard invoice can be used to create a proforma invoice too. Purchasing proforma invoice inventory software or accounting software for chartered accountants with an integrated proforma invoice template will provide you with the most significant help. Alternatively, you can have a proforma invoice in an application that matches your design.
Format Of Proforma Invoice
Even though a proforma invoice's format is open-ended and adaptable, some fields should be included to make the process efficient and straightforward.
- The Proforma Invoice document title.
- The buyer's shipping and billing addresses.
- Location and name of the seller's business.
- Terms and conditions of the transaction.
- Dates of invoice production and expiration.
- Information about the products or services that will be offered.
- Price and quantity of the goods or services.
- Taxation and discounts.
- Total amount due.
Proforma Vs. Sales Invoice
Proforma and sales invoices differ primarily in their transmission strategy rather than their look. Similar to a conventional invoice, proforma invoices inventory software gives agents information about the specifics of the goods being delivered. Contrarily, invoices refer to commercial products provided to the buyer and include information about the good or service the seller is offering. Proforma invoices serve as quotations for sales, and invoices serve as receipts for those sales. The financial transaction books do not contain any entries for proforma invoices because they are fictitious invoices designed to generate income.
Conclusion
Proforma invoices are a preliminary summary of the transaction sent before the sale is confirmed to speed up the quote-to-cash process and give the buyer time to study the terms and conditions before the deal is finalized. Proforma invoices can be considered by companies expanding quickly and searching for solutions to streamline their billing procedures.
