What is a proforma invoice?

A proforma invoice looks like an invoice but is not a demand for payment — it is a commitment to supply at a stated price, used so a buyer can raise a purchase order or arrange import paperwork.

Three things make it different from a real invoice: it carries no invoice number from your sequential series, it does not create a tax point, and it should be labelled "Proforma Invoice" clearly so nobody books it as a payable.

When you would send one: the client's finance system needs a document before it can issue a PO; goods are crossing a border and customs wants a declared value; or a new client wants the price in a formal document before committing.

Once the order is confirmed and the work delivered, you raise the real invoice — and only that one goes into your books.

What it actually is

A proforma invoice is a document that looks like an invoice and is not one. It sets out what you propose to supply and what it will cost, in invoice format, before the supply happens. It creates no debt, no tax point and no entry in either party's books.

The format is the point: the customer's systems and their bank expect something invoice-shaped, so a proforma is the quotation rendered in a shape those systems can act on.

When it is the right document

• Advance payment. The customer needs a document to pay against before the work happens. A quote is not payable; a proforma is.
• Internal approval. Procurement needs to raise a purchase order, and needs an invoice-shaped document showing exact figures to do it.
• Customs and international trade. A proforma is standard for declaring the value of a shipment before the commercial invoice exists.
• Deposits. Where you want money before starting but do not want to create a tax liability yet.

What it must say

Label it "Proforma invoice" prominently, and do not give it a number from your invoice sequence — use a separate reference. That sequence is for real invoices only, and putting a proforma in it creates either a gap or a duplicate later. State that it is not a tax invoice, and give it a validity date.

The tax point, which is the whole reason it exists

In most systems a proforma creates no tax point, so no tax is due on issuing it. But receiving payment usually does create one. So the sequence is: issue proforma, receive payment, then issue a real tax invoice for the amount received, dated at the payment.

The step people skip is the last. Taking payment against a proforma and never issuing the real invoice leaves the customer unable to reclaim the tax and leaves your records showing money received against nothing. The proforma is not a substitute for the invoice; it comes before it.

Proforma versus quote versus estimate

A quote is a fixed price offer, usually with terms and a validity period. An estimate is an approximation that may change. A proforma is a quote formatted as an invoice so it can be paid or approved. The three overlap heavily in practice and the differences matter most when there is a dispute.

When not to use one

For ordinary domestic work where the customer pays on completion, a proforma is a step nobody needs. Quote, do the work, invoice. Introducing a proforma into a simple job adds a document and a chance for confusion about which one to pay — and customers do pay the wrong one.

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