If you’re a business owner you’re probably familiar with the world of invoices and with the term ‘proforma invoice’. For those of you who still don’t know, proforma invoices are invoices that are provisional bill of sale that is sent to your customer before delivering your goods or services.
It’s more like a commitment to goods or services that have yet to be delivered. On this bill, you’ll list the work to be completed, the quantity, and the price for the product or services that you’re providing. The proforma is not an invoice, so it cannot be used for accounting purposes. The Proforma invoice is not a request for payment. Instead, it’s commonly used as a preliminary invoice.
The purpose of a proforma invoice
The purpose of this type of invoice is to streamline the sales process. First, you send the proforma invoice, then after the customer agrees to the price, you send the product or services. So it’s not a demand for payment, it’s an invoice that lets the customer know what to expect from you.
Some other purposes of proforma invoices are:
- To declare the value of goods for a delivery
- Ideal when you don’t have all the details required for a commercial invoice
- For the internal purchase approval process.
The difference between Invoice and Proforma invoice:
- The invoice is sent to the buyer to confirm that the transaction is completed and to request payment. Whereas the proforma invoices are a written proposal that is sent before billing, it lists the goods and services that will be delivered.
- Invoice is issued before payment is made, and the proforma invoices are issued before order placement.
- The purpose of an invoice is to inform the customer about the amount due for the goods and services provided. The Proforma invoice helps the buyer know what to expect.
- An invoice should include the business logo, contact information, terms, and condition (customized invoice). The Proforma invoices include all similar information as an invoice but should be labeled ‘proforma’.
- Commercial invoices are necessary for paying the bill and are noted as accounts receivable. It should be filed for references. The Proforma invoices give your business general information on the amount that will be due, so it’s not used for accounting purposes.
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