What is a proforma invoice. Use cases and best practices

All companies know what an invoice is, they send and receive them on a daily basis, confirming that Invoicing is an integral part of running a business. But the entrepreneur does not always know what a proforma invoice is.

One of a kind, Those who know what a proforma invoice is know that it cannot be compared to the ordinary invoice, but that it is not a quotation either.. It does not have a unique, sequential invoice number, nor does it have fiscal value, nor is it included in the accounting records.

However, it goes beyond a simple presentation of the price of a series of products in detail, as it reveals the existence of an agreement between buyer and seller.

What is a proforma invoice?

A proforma invoice is essentially a preliminary sales invoice. This document outlines a seller's intention to deliver certain products or services to the customer, for a specific price.

The firm agreement is what differentiates a pro forma invoice from a real invoice, because in the pro forma the price has not yet been agreed.

What are its advantages?

Companies that know what a proforma invoice is and are accustomed to using it, take advantage of some of its main benefits, as the following five:

1. They are helpful if you do not have all the details of a commercial invoice, e.g. before the goods are delivered.
2. Can be sent to declare the value of the goods at customs, for a smooth delivery process.
3. They are a sign of good faith on the part of the seller and, although they are not a demand or a request for payment, they let the customer know what to expect.
4. They facilitate the internal procurement approval process.
5. Streamline the sales process because once the customer accepts the price on the pro forma invoice and the goods are delivered, there is no going back and it is assumed that both parties have agreed on the terms of the sale.

What are the best practices for their management?

Since a pro forma invoice is a quotation rather than a confirmation of a sale, the terms are subject to change before the final invoice. That is also the reason why, in a balance sheet a proforma invoice is not registered, as it is not a real invoice.

However, buyers can still continue to best practices when it comes to managing pro forma invoices, The following recommendations should be taken into account in particular:

• While the proforma invoice is subject to change, the data it indicates should be as close as possible to the actual sales data.
• It is important that pro forma invoices contain information that is transferable to create other documents, such as a commercial invoice.
• The date of the pro-forma invoice should be noted as certain variables such as material costs, international tariffs and exchange rates are constantly fluctuating, which could lead to price increases that should be taken into account.

Do you already know what a proforma invoice is? To find out more about invoicing, in this article we explain how and when it is possible to issue invoices without VAT.