What is a Proforma Invoice?

A proforma invoice is a preliminary or estimated invoice used to ask a customer or buyer (already committed) to pay for goods or services before they are performe.

A proforma invoice includes a description of the goods or services to  perform, the total amount can paid, and other details about the transaction.

For a better understanding, it can be define as a type of invoice/draft where the client is told what the future invoice will be. Customers are not require to pay the amount shown on the proforma, and it cannot use to claim VAT.

It is not an ordinary invoice. It is simply a declaration of commitment between the company and the client. They are not register as accounts payable by the other party.

What is the Proforma Invoice For?

The proforma invoice is merely informative and will not be part of the accounting of any of the parties.

Therefore, with the it, all the details on the final invoice will be written down. An informative medium in which the client or buyer can analyze and discuss what they do not agree with.

On the other hand, it is essential to know that it does have legal validity in the event of problems since it is a document that accredits the activity carried out.

It can sent before carrying out the commercial activity.

How is it Different From a Budget?

It is true that knowing the meaning of a proforma invoice, and doubts may arise about the similarity with the budgets.

The quote can sent to a potential client who has express an interest in hiring the company’s services. It can much less formal than a proforma invoice and is usually sent in the early stages of the sale.

Both a proforma invoice and a budget offer the details and the final cost of the services to be offer. So how are they different?

For practical purposes, the differences are minimal, perhaps in making these informative figures. But there is a significant difference: It is valid for legal purposes. On the other hand, the budget does not have relevant meaning.

It is one of the significant advantages of a proforma invoice. It serves to prove the performance of an activity.

Requirements for an Invoice to be Proforma

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The pro forma invoice has a composition similar to that of an ordinary invoice. We are going to list the requirements that a proforma invoice must carry:

  • The document must include, in some way, the notice that it. The text it is place at the top of the document.
  • Date of issue.
  • Complete data of the buyer and seller.
  • Detail of the goods and services that are part of the commercial activity. With its price including VAT.

The section on the definition of services or products linked to commercial activity does not need to be complete. A minimum description helps the client understand what the work is about and its final value.

When Should it be Use?

At first glance, it is not a resource that can be use daily, but it has some utility in various scenarios.

In Principle, we can Use a Proforma Invoice :

  • Send the proforma invoice to inform about the details of the activity to be carry out.
  • It is usually use to declare the value of goods at customs.
  • It can usually sent to  client when there can already a commitment, but an official invoice cannot sent because the final details have yet to confirm.
  • Any case in which the reason is to inform about products or services to be carry out.
  • Some companies request proforma invoices for their internal purchase approval process.

In conclusion, a proforma invoice can be an excellent resource to speed up transactions and information with the interested party. It is not accounting binding, it does not imply an obligation, but it has value for legal purposes.

Conclusion

A proforma invoice is a preliminary bill of sale sent to buyers in advance of a shipment or delivery of goods. The invoice will typically describe the purchased items and other important information, such as the shipping weight and transport charges.

Also Read: What is Bitcoin? – Work, Function, and More

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