What is a Proforma Invoice And How to Create It
What is a Proforma Invoice?
A proforma invoice is a preliminary bill or estimated invoice that is used to ask for payment from the committed buyer before goods or services are shipped. A Proforma invoice includes a description of goods and details about the transaction, such as the total amount due and the item itself.
It is basically a “good faith agreement” between you (the seller), and a buyer so that the buyer knows what to expect.
If payment in advance is required to secure financing, this could be an example. you are manufacturing goods or supplying a service, A proforma is a document that allows you to present the details of upcoming transactions, whether
Is a proforma invoice legally binding?
A proforma can include a lot, but, if not all of the information, that appears on a final sale invoice, it doesn’t have the same legal weight, and should not be used as an accounting tool or binding agreement.
A proforma can be thought of as a quote, estimate, or invoice. The reason is that customers don’t have to pay the entire amount on the proforma. Additionally, the total amount due doesn’t appear under your accounts payable or the customer’s accounts receivable. You can’t use the proforma to claim VAT.
When should you send a proforma invoice?
It is important to note that although a proforma can be sent to customers or clients when they have committed to buying from you, it cannot be used to send an invoice. The final details must still be confirmed. After the customer has agreed to all terms, you will deliver the goods and issue an invoice.
What makes a proforma different from other types of invoices?
Here are some examples of common invoice types that can be used to help you understand the role of a proforma in the sales process:
Sales invoice
A sales invoice is a request for payment. It’s sent shortly before or at the time that goods or services are delivered. It can be referred to as a payment request or a tax document and if it includes VAT, it may be called a tax invoice.
Originally Published on The Tech Trend
