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performa invoice

Suresh Pai S (Tax Consultant) (1029 Points)

03 March 2017

what do you mean by performa invoice?

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Piyush Tanwar (Assistant Manager - Accounts) (1432 Points)
Replied 03 March 2017

Performa Invoice basically used for the proposal / quotation for the expenses in advance to the clients.

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Piyush Tanwar

CA Finalist & Internal Auditor

Mobile - 9717468521

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Sanjay S (Chartered Accountant) (1375 Points)
Replied 05 March 2017

Its actually spelt ... PROFORMA INVOICE.

A pro forma invoice is a document that states a commitment on part of the seller to deliver the products or services as notified to the buyer for a specific price. It is thus not a true invoice. It is a document that is sent to a buyer in certain circumstances - usually before all invoice details are known.

A proforma invoice looks somewhat like this:

Suresh Pai S (Tax Consultant) (1029 Points)
Replied 05 March 2017

how does it differ from a quotation?

Sanjay S (Chartered Accountant) (1375 Points)
Replied 05 March 2017

Technically, the sequence would be as follows:

1. Request for Quotation (RfQ) by BUYER

2. Quotation from Supplier (shows the lead time, Max qty, etc)

3. T & C confirmed by Buyer (verbal or otherwise)

4. Proforma Invoice from SUPPLIER fixing the rates,etc.

5. Purchase Order from BUYER.

Hence there doesnt seem to be much of a difference between a quotation n Proforma invoice, since its usually either one or the other.

Once after agreeing the terms of contract of sale, the buyer has to issue a purchase order or Letter of Credit. Just before this process, the seller has to send a ‘pro-forma invoice’ to buyer, mentioning complete details of agreement of sale. Normally, purchase order or Letter of credit is opened on the basis of this pro-forma invoice sent by the seller.

So, we can treat pro-forma invoice as a document of commitment to sell the goods to the buyer as per the terms and conditions agreed between both in person, over telephone, by fax, email or any other mode of communication. In other words, we can treat the pro-forma invoice as a ‘confirmed purchase order’ from the seller, although the official purchase order has to be issued by the buyer. The pro-forma invoice is issued before sales takes place.

How does Purchase order work?

Once after completion of enquiry procedures between buyer and seller about the details of product and after satisfaction of quality, price and terms and conditions the seller sends a pro forma invoice to buyer. Based on such pro forma invoice, buyer release a Purchase order to seller as confirmation of purchase of his goods. Purchase order contains the details of product, quantity, price, payment terms, delivery terms and other terms and conditions of purchase contract as mutually agreed between buyer and seller. Normally purchase order is prepared by buyer on the basis of pro forma invoice sent by seller to buyer. Once after acceptance of purchase order by seller, the purchase contract exists.

Once after receiving pro-forma invoice from the supplier, the buyer sends a purchase order or opens a letter of credit to the supplier.

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