Sometimes people get confused between invoice and proforma invoice due to its similarity. But the fact is they both are different. An invoice demands payment from the buyer for the goods being delivered to him, whereas a proforma invoice is like a dummy invoice sent to the buyer on his request, before the delivery of goods.
What is Proforma Invoice?
A proforma invoice is a document issued by the seller to the buyer that provides information regarding the description of goods which is yet to be delivered. The document specifies the particulars of goods i.e. quantity, price, weight, taxes and any other commissions.
The objective to issue the proforma invoice is to help the buyer to have an understanding of goods for which he has placed an order.
As the document is not a true invoice, it does not constitute actual sales, so no entry is made on the issue of the proforma invoice in the books of the seller for accounts receivable and the receipt of the buyer for accounts payable.
When is a Proforma invoice used?
A pro forma invoice is created before the sale actually happens. A supplier will issue a Pro forma invoice on a request by the buyer before delivery of goods.
The supplier will deliver the goods after the goods will be ready and the buyer will pay when the invoice is received. The final invoice amount will be the same or close to the amount on the pro forma invoice.
Pro forma invoices are commonly used in imports or exports for a smooth delivery process.
Format of Proforma Invoice
There is not any prescribed format of a pro forma invoice. It may be exactly the same as the actual invoice but labelled as "Proforma" which shows it is only an estimate and should not be paid before the work is done and the final invoice is issued. It could be in different formats as well.
Proforma invoice is not a requirement by law. However, it is only issued for convenience & as a part of best practice in business.
Purpose of issuing Proforma invoice
• To ensure that the seller and customer are on the same page about the agreement including the price of the goods and services.
• To provide an estimated sale price of goods or services
• To give an overview of goods to let the customer know what to expect.
• Most useful when two companies are doing business together for the first time.
What Is the Difference Between an Invoice and Proforma Invoice?
You can differentiate between invoice and proforma mainly by one word i.e. "Proforma" which is labelled on a proforma invoice whereas no such word is written on a regular invoice.
Some other differences are as follows:
|
Basis for Comparison |
Invoice |
Proforma Invoice |
|
Definition |
A document sent to the buyer confirming that the sale occurred and requesting for payment |
A Proforma invoice is a document that is sent to the buyer that provides information regarding the description of goods which are yet to be delivered. |
|
Time of Issue |
Invoice is issued before payment is made |
Issued before goods are delivered to the buyer. |
|
Objective |
The objective is to inform the buyer that payment is due for goods and services provided. |
To help the buyer know what to expect and have an understanding of goods for which he has placed an order. |
|
Modification |
Regular invoice is final and cannot be modified. It is legally binding upon both parties. |
Proforma invoice is temporary and subject to change |
|
Format |
The invoice includes goods details, price quantity, the logo, contact information, billing addresses, information, terms and conditions etc. |
A proforma invoice includes information about the particulars of goods i.e. quantity, price, weight, taxes and any other commissions. It should be clearly labeled "proforma" |
|
Accounting |
Invoice is issued upon actual sales so entry is made for the same in the books of both buyer and seller account. |
It does not constitute actual sales, so no entry is made on the issue of the proforma invoice |
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