Glossary
What is a proforma invoice?
What a proforma invoice is, how it differs from a tax invoice, and what a small business can send instead.
Updated
In short
A proforma invoice is a preliminary bill sent before a sale, showing items, prices, tax and total so the buyer can approve or pay. SimpleERP has no proforma document; a quotation does the same job.
A proforma invoice is a preliminary bill a seller sends before the sale, showing the items, quantities, prices, tax and total the buyer will pay. It is not a tax invoice: it creates no tax liability, no sale in the books and no amount owed. Buyers use it to arrange payment, release an advance or get internal or bank approval before the goods are supplied.
Proforma invoice: a worked example
Riverside Stores wants 10 office chairs from Harbour Steel Furniture and needs a priced document to release a 50% advance. Harbour Steel, a fictional furniture maker pricing in US dollars, sends this, marked as a proforma or as a quotation:
| Item | Qty | Rate | Amount |
|---|---|---|---|
| Office chair mesh | 10 | $645 | $6,450 |
| Tax at 20% | $1,290 | ||
| Total | $7,740 | ||
| Advance requested (50%) | $3,870 |
Is a proforma invoice a tax document?
No. In VAT and GST systems the document that records a taxable sale is the tax invoice; the tax invoice format guide lists what it carries. A proforma invoice is an offer, so it takes no number in your invoice series, is not reported in your tax return and does not let the buyer reclaim tax. If the buyer pays an advance against it, the advance follows your country's rules for advances, which can differ for goods and services.
FAQ
Questions, answered
What is the difference between a proforma invoice and a tax invoice?
A proforma invoice comes before the sale and only states what the buyer will pay. A tax invoice is issued when goods or services are supplied, carries a number in your invoice series, is reported in your tax return and records the sale, the tax and the amount the customer owes.
Can I claim input tax credit on a proforma invoice?
No. Reclaiming input tax needs a valid tax invoice from a registered supplier. A proforma invoice is not a tax document, so a buyer should wait for the tax invoice before reclaiming the VAT or GST on it.
Is a quotation the same as a proforma invoice?
They carry the same information: items, rates, tax and total. A quotation is usually sent earlier, while the buyer is still deciding, and a proforma invoice once they have agreed and need a bill-like document to pay against. Many small businesses use one document for both.
Does a proforma invoice need a number?
It is good practice to number proforma invoices so you can refer to them, but use a separate series from your tax invoices. Mixing them would leave gaps or duplicates in your invoice series that your tax records have to explain.
Related
Keep reading
Quotation
A priced offer sent before a sale, with items, rates, tax, total and the date the prices hold until.
Read moreTax invoice format
The fields a VAT, GST or sales tax invoice usually carries, how the tax lines are worked out, numbering rules, and a worked invoice to check yours against.
Read moreQuotation format
A quotation format with tax shown line by line, as a free Excel, Word and PDF download.
Read more
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