What is proforma invoice?

A Proforma Invoice is an initial sales invoice that a company sends to sellers in advance of the goods or services delivery or transfer. This type of invoice declares the description, value, quantity, shipping information and payments for the products or services that will be bought.

Proforma invoices are sent out before the sale is completed. The purpose is to formalize the contents of the order and to give both buyer and seller an estimate of what the delivery contains and what it’s worth.

Advantages of a Proforma invoice

The main advantage of a proforma invoice is that as it is not a finalized sales invoice and you don’t need to revise it if there are changes to the goods or services you deliver.

When items may be damaged in transit:

If items are damaged when received, you’d typically have to send your customer a against the original invoice. With a proforma invoice, you can make any necessary adjustments and then turn your proforma invoice into a full sales invoice.

When customers may change their order

When a customer recompenses their order after a delivery has been sent out, your invoice will be incorrect and would need to be re-raised. A proforma invoice can simply be restructured and converted to a full invoice.

When project scope may increase

If you’ve quoted to deliver a service and discover that more work will be needed than you estimated, you’d need to send out additional invoices. By using proforma invoices, you just finalise the sale once the full scope is confirmed.

How to issue proforma invoices

To issue a proforma invoice, you’ll need to include such fields and pieces of information, so your customer can quickly understand the nature of the invoice.

A proforma invoice will generally include:

• Your company name, logo and address
• Current date and an expiration date for the proforma
• A list of the products/services sold
• Quantities of each item in the order
• Prices for each item on the list
• Any applicable tax rates and the tax amount
• The total amount that the buyer will need to pay
• Your payment details

Mainly, your proforma invoice doesn’t have an invoice number, as it’s not a finalised sales invoice. The sale will only be counted  into your accounts under sales revenue once the proforma invoice is converted into a regular invoice.

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