What is a Proforma Invoice & When Should You Use One?

By Hannah
Last updated: 10 October, 2024 , First published: 15 September, 2021

what-is-a-proforma-invoice

A proforma invoice is the sweet spot between a quote and an invoice. Think of it as a detailed preview of what you're selling and what it’ll likely cost, but with room for adjustments and negotiations.

More official than a standard quote, but unlike an invoice, it gives both parties a clearer picture of the deal with being an outright demand for payment. While it can’t be used to request payment, it's a flexible and informative document that's ideal for keeping the conversation open without locking anyone in.

Proforma invoice vs invoice vs quotation

Let’s look at exactly how a proforma invoice differs from a regular invoice, or a quote:

	Quote (Quotation)	Proforma invoice	Invoice
Purpose	To give a rough indication of the cost of work or products at the very beginning of proceedings	To give a more detailed breakdown of the costs involved. Usually issued just before the order is made	To give the full breakdown of work/products delivered, and request payment. Invoices can be used for accounting purposes (unlike proforma invoices)
Issued	Early on in proceedings	Just before orders are made	Once work has been completed or products delivered
Format	No formal format needed	Similar to an invoice, but without an invoice number. Should clearly be labelled as ‘Proforma invoice’ to avoid confusion	Should include details such as contact details for both you and the recipient, an itemised list of goods/services, and an invoice number (more detailed breakdown of this below)

A quote, proforma invoice and invoice aren’t all required for every transaction. Often a quote and an invoice will be enough.

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When to use a proforma invoice

So if that’s the case, why do proforma invoices exist? And when should you use one?

Proforma invoices work well for situations in which the final payment amount for the goods or services still may change.

1. When shipping abroad (or there’s a chance of things being damaged in transit)

Let’s say you’re shipping 500 ceramic bowls overseas. You’ve packed them carefully, but what’s the likelihood of all 500 arriving unharmed?

You need either a proforma invoice or an invoice to ship products abroad. This shows the customs department what is in your shipment, and how much it’s worth. You might think it makes sense to just go straight ahead and issue the invoice, but in the scenario above, you’d then have to raise a credit for any bowls that didn’t survive the trip. It’s less admin to start with a proforma invoice, then adjust and send this as a final invoice once the order has been received.

2. When you can’t fully predict the full cost yet

In the service sector, a proforma invoice is good when you know unforeseen circumstances could arise. It’s a way of formalising your initial quote, and basically saying ‘this is exactly what you’re paying for’ breaking the tasks and materials out specifically. If anything unexpected crops up, it’s easy to refer back to this comprehensive proforma invoice and explain why you need to charge more.

Creating a proforma invoice

A proforma invoice normally contains everything you’d expect on a regular invoice, except for an invoice number. It also must be clearly labelled as ‘Proforma’.

It’s normal/expected for a proforma invoice to include:

The date of issue (when you’re creating the invoice)
Contact details for both you and the recipient person or business
List of everything sold (with description)
Price and quantity of each item
Any tax rates (e.g. VAT) and the amount for each
The total payment amount
Your payment details

You can either raise a proforma invoice using your accounting software, or by using a template and creating your own in a Google doc.

Final thoughts

Proforma invoices are a handy way for businesses to avoid extra admin, or difficult conversations. They help get everyone on the same page before any money is exchanged.

CREOATE suppliers wishing to ship abroad will need to be able to create a proforma invoice to go with their shipments. Got any questions? Check out the FAQs below, or drop us a comment if we haven’t covered it.

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FAQs

Proforma invoice vs invoice: are they the same?

Unlike a regular invoice, a proforma invoice cannot be used for accounting purposes, or to enforce payment. Otherwise, it looks much like a regular invoice — it just doesn’t have the invoice number, and should be clearly labelled as ‘proforma’.

Proforma invoice vs quote: what's the difference?

A quote is typically issued at the start of your negotiation, and gives a rough estimate of the total end cost. A proforma invoice is a more detailed breakdown of the costs involved in a project — more like a heads up before the final invoice comes through. No, you should send a regular invoice (including an invoice number), and payment should be made on this.

Can payment be made on proforma invoice?

No, you should send a regular invoice (including an invoice number), and payment should be made on this.

When should a proforma invoice be issued?

A proforma invoice should be sent with the goods so they arrive together. If you’re issuing a proforma invoice for a service, it’s advisable to do this just before you start work, once you’ve already verbally agreed things.

Is a proforma invoice legally binding?

We do not believe a proforma invoice is legally binding (in the sense that it cannot be used for accounting purposes, or to legally enforce payment). However it is always worth getting professional legal advice if you’re unsure.

Can a proforma invoice be cancelled?

It’s not necessary to formally cancel a proforma invoice. If you don’t go forward with the transaction, it can simply be thrown away.

Does proforma invoice have a number?

No, a proforma invoice should not have a number. This is one of the important differences between a proforma invoice and a regular invoice (the other being that a proforma invoice should be clearly labelled ‘proforma’).

How do you pay a proforma invoice?

You shouldn’t pay a proforma invoice. Instead, you should wait for (or request) a regular invoice with an invoice number and pay this version instead.

Does a proforma invoice need to be signed?

It is best practice for the recipient of the goods or services to sign the proforma invoice and return it to the sender.

Are proforma invoices illegal?

Absolutely not! They're a really helpful stage of some transactions, they're just not a legally binding way to request payment. A normal invoice is legally binding, so if yours doesn't get paid, you're able to take this to court.

Can I reclaim VAT using a proforma invoice?

No, according to HMRC, this is not possible in the UK. But as always, do seek out professional legal or financial help if you're not sure.