A pro forma invoice is an initial sale document that includes a price quote, payment details, and other essential info on the future transaction. Businesses send pro formas to potential clients as a request for payment when the sale is likely to happen. This short guide will walk you through everything you need to know about pro forma invoices.

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What is a pro forma invoice?

Common for some types of purchases, a pro forma invoice is a document of sale that looks almost exactly like the future invoice. It breaks down all transaction details.

The main goal of a pro forma invoice is to inform the buyer about the price, including payment details. Pro formas are typically used when the sale is meant to happen due to previous arrangements, such as email correspondence, or because it’s a renewal.

A pro forma invoice typically includes the following elements, many of which are similar to invoice details:

  • product or service name and description,
  • prices, rebates (if any), quantities, tax rates, tax amounts, total amount,
  • payment details, such as bank account number,
  • date of the pro forma invoice and a due date (if agreed),
  • any other details important to the buyer including sales and marketing info.

When to use pro forma invoices?

In most English-speaking countries invoices are issued after the sale but before the payment in contrast to receipts which are more of an acknowledgement that the payment arrived.

Pro forma invoices are issued and sent to the potential client even earlier than both invoices and receipts—before both the sale and the payment. This is due to the fact that pro formas are more of a sale proposal meaning that the sale may or may not happen.

Pro forma invoices — Typical use cases

  • Payment in advance is required

Some services and products need to be paid for in advance so that the seller can make sure the financing is secured before they start completing the order.

  • The sale is likely to happen

Sending a pro forma invoice is considered not just an estimate but also a request for payment. It probably shouldn’t be sent until the seller knows the sale is likely to happen.

Pro forma invoice vs. tax point occurrence

Issuing a commercial document such as a pro forma invoice doesn’t mean that the tax point occurs. The tax point is based on whether or not the business uses cash or accrual-based accounting.

Cash-based method means that the tax point occurs when the payment arrives. Receiving the payment means that the company should issue a receipt and use it for the sale records, rather than the pro forma.

Accrual-based method means that the tax point occurs after the sale happened and is billed for, regardless of the payment date. Given that pro formas aren’t formal documents of sale, they don’t cause the tax point to occur in the accrual-based method.

Learn more about cash vs accrual accounting from our short guide.

Pro forma invoice — frequently asked questions

Given that pro forma invoice is not a formal document, there are plenty of questions that business owners often seek answers to. Here are some of the most popular ones.

  • What is the difference between a pro forma invoice and an invoice?

In most cases, pro forma invoices and regular invoices differ regarding dates of issue and the date of sale. All other elements may be the same, although some differences may occur depending on the company and the type of goods or services sold.

  • Is pro forma invoice legally binding?

No, at least in most cases. A pro forma is a request for payment but it doesn’t assume that the payment is required. In most cases, the client is free to either pay or not to pay. However, the payment may be required anyway based on other documents, such as an agreement.

  • What to include on a pro forma invoice?

Pro forma invoices typically include the same elements as invoices, with the exception of dates. It makes sense to list products or services sold, prices, quantities, tax rates, tax amounts, total amount, and, most importantly, payment details.

  • What is the difference between pro forma invoice vs estimate?

A pro forma invoice and an estimate may include exactly the same elements. For example, QuickBooks doesn’t include pro forma as one of its standard documents. To create a proforma in QBO you need to edit an estimate’s template by changing its name to “pro forma invoice”.

  • How to create a proforma invoice?

Depending on the cloud accounting system you use, pro forma invoices may be one of the default document types. If they’re not among default document types, the system may allow you to edit the document template for estimates, quotes, or regular invoices so that the name says “Pro Forma Invoice” or “Proforma Invoice” (in the commercial world both forms are accepted).

  • When you need to convert a proforma into a true invoice?

When the sale is completed, you may be required to convert the pro forma into a true invoice. It depends on whether or not issuing an invoice is required based on the local laws or the client’s request. If the next step is payment, then it is common to issue a receipt rather than an invoice.

  • Can you claim business expenses based on pro forma invoices?

For claiming business expenses you need sufficient proof of purchase, which in most cases are receipts, invoices, and bank statements. Read this guide to learn when it’s possible to claim expenses without a receipt.

If you made the payment based on a pro forma invoice, it’s best to ask for a receipt and use it for accounting records rather than a pro forma which may be refused by the tax authorities. To reclaim VAT, you need a proper VAT invoice that meets all requirements specified by the EU laws.

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