Like all invoices, a pro forma invoice represents a transaction between a buyer and a seller—but there’s more to it than meets the eye. Although similar to a regular invoice, a pro forma invoice serves a different purpose and cannot be used interchangeably with regular invoices.
Understanding the key differences is essential to managing your accounts payable and avoiding costly mistakes. This article covers everything you need to know.
Here’s what we’ll cover:
Definition of Pro forma invoice
A pro forma invoice is an estimated invoice sent to the buyer prior to delivery of goods or services, detailing costs and terms, and is sometimes used to request advance payment. It lists what you’re selling, the total price, and important details about the job.
When looking at the definitions of an invoice, a typical invoice is a document that shows what is owed for goods or services that you have delivered. A pro forma version is essentially a promise of “good faith” between you and the buyer, so they know what to expect.
For example, if you need an advance payment to lock in financing before making goods or delivering a service, a pro forma invoice sets out all of these details before any work is done.
It is not an actual request for payment. It confirms certain details while notifying the buyer of any other parts that still need to be completed. In that sense, a pro forma invoice is closer to a quote or estimate than an invoice.
Is a pro forma invoice legally binding?
Although it includes many of the same details as the final sales invoice, a pro forma invoice is not legally enforceable in the UK. You cannot use it for legal accounting, VAT reporting, or as a binding contract.
Your customer does not have to pay what is listed, and it will not appear on their accounts payable or your accounts receivable.
Can a pro forma invoice be cancelled?
A pro forma invoice is a preview of a possible transaction based on what your customer has ordered, so cancellation is not necessary.
What is a pro forma invoice used for?
Pro forma invoices help both buyers and sellers understand the terms of the agreement, including prices, items, and delivery details. It is not a requirement for payment, but it can be the basis for agreeing on prices and terms.
Why do businesses use pro forma invoices?
Issuing a pro forma invoice means you are giving your buyer information about what to expect in terms of cost, delivery, and other details, such as commission. It keeps things clear and can help prevent surprises or misunderstandings, once the goods or services have been delivered.
Pro forma invoices are often used by UK businesses for custom orders or when goods need to clear international customs.
Pro forma invoices are great for custom orders, as they let your customer know how much their requested item will cost before production begins.
When should a business send a pro forma invoice?
A pro forma invoice is usually sent when an order is placed, before shipping.
It’s a way to confirm details and pricing up front and avoid going back and forth later. It is especially useful when you are dealing with exports.
What is in a pro forma invoice?
A pro forma invoice is full of information. Here are the details of what makes up this original document:
- Detailed descriptions of goods: including the country of origin and the relevant product category (such as the Harmonized System (HS) code or the UK commodity code used by HMRC to calculate duties and taxes).
- Product price: the cost of your goods and/or services
- Delivery terms: where does the packet come from, and where does it go? When can the customer expect delivery?
- Eligibility or expiration date: How long is the quoted price good for?
- The term “pro forma invoice”: let the buyer know that it’s just a preview, not the final bill.
Check out our entire range of free invoice templates.
Example of a Pro forma invoice
As an example of a working pro forma invoice, imagine you work for a pet group and receive an order for 1,000 pet care packages. Instead of jumping into packaging, you send a pro forma invoice with the price, delivery date, payment terms, and any discounts.
This allows the buyer to review the information and negotiate if needed. Once everyone is on the same page, you finalize the pro forma, start packing, and send the actual invoice. It’s a smooth way to manage orders and avoid last-minute encounters.
Sample pro forma invoice template
Of course, the pro forma invoice format can vary depending on the nature of your business and products or services. But we have presented a basic template below for illustration purposes:
Seller information:
Company Name: _________________________
Address: ______________________________
Phone: ________________________________
Email: ________________________________
Buyer information:
Company Name: ________________________
Address: ______________________________
Phone: ________________________________
Email: _________________________________
Invoice number: ___________________________________
Date of invoice: ___________________________________
Payment date: _______________________
Combined list of goods/services:
| Item Description | Plural | unit price | Total Price |
| ______ | ______ | ______ | ______ |
| ______ | ______ | ______ | ______ |
| ______ | ______ | ______ | ______ |
Minimum amount: ___________
Tax (if any): ___________
Shipping cost: ___________
Total amount due: ___________
Terms and conditions:
Payment is due by: ________________________________________
Delivery date: _____________________________
Other names: ___________________________________
Signature: ________________________________________
Date: ________________________________
What are the benefits of using a pro forma invoice?
Using a pro forma invoice offers several important benefits to both buyers and sellers:
- Transparency: it is like a clear window of agreement, showing both parties what has been agreed upon.
- Considers the sales process: it smoothes things between seller and buyer before the purchase is locked in. There will be less back and forth and more action.
- Discussion tool: since it is not a final bill, both parties can use it to adjust the terms or make changes to the order.
Disadvantages of pro forma invoice
Although pro forma invoices have their advantages, they are not without their disadvantages:
- Possible misunderstandings: customers may get confused and think it is a real invoice. This can lead to a combination of payments.
- Absence of legal weight: these are not legally binding, so you can’t force your customer to pay just because you sent them. If the buyer backs out, you can lose once you start making products/services.
- Possible changes in final costs: the pro forma may not match the final bill if costs or taxes change, which could lead to disputes about what is actually owed.
Pro forma invoice versus invoice
Let’s look at the difference between a pro forma invoice and a standard invoice. This will also give you an idea how to write an invoice that really works.
| Proforma invoice | An invoice | |
| The purpose | An overview of terms and costs | Final payment request |
| It is legally binding | No | Yes |
| It uses | Early estimate, pre-sale negotiations | Final sale confirmation, payment requested |
| Flexibility | It can be modified before the final agreement | Fixed and final. No changes are allowed |
Pro forma invoice versus commercial invoice
Pro forma invoices are useful in international trade, especially when goods are shipped before the final commercial invoice is received. They can help tax authorities and couriers estimate duties and VAT in advance.
| Proforma invoice | Commercial invoice | |
| The purpose | First estimate, no need for payment | Legal document for payment and customs |
| It is legally binding | No | Yes |
| Use the case | Pre-sale, negotiation, or custom measurement | Final sale, payment collection, HMRC requirements |
| Level of detail | There can be very little detail | It should include detailed transaction information |
Pro forma invoice is compared to purchase order
A pro forma invoice is a preview of costs and terms, while a purchase order is a formal request from a buyer to purchase something. Here’s how they differ.
| Proforma invoice | Purchase order | |
| The purpose | Evaluate and preview goals | Buyer’s official purchase request |
| It is legally binding | No | Yes, if accepted by the seller |
| Use it | Notify the buyer of costs and conditions | Determine what the buyer wants to buy |
| The initiator | Vendor document | Buyer’s document |
Cloud-based invoicing software makes managing pro forma invoices easy
Pro forma invoices can make your business life easier by keeping things transparent and organized before the sale closes. However, you need to make sure that your clients or customers know that what they are being offered is not the final invoice.
Use powerful cloud-based invoicing software to reduce errors, get paid faster, and have all your receipt needs at your fingertips, whether you’re in the office or on the go:
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- Create accurate digital invoices: avoid disputes and simplify payment.
- Receive payments on time: we ensure that invoices reach customers quickly with clear payment terms.
- Manage invoices on the go: access and manage your invoices anytime, anywhere.
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