6 min read
TL;DR: A purchase order (PO) confirms a buyer’s intent to purchase at agreed terms, while a proforma invoice (PI) is a seller’s preliminary estimate shared before final billing. Knowing when to use each avoids disputes and delays for SME manufacturers.
Purchase Order vs Proforma Invoice: What You Should Know
Purchase orders and proforma invoices are widely used documents in manufacturing procurement. While they contain similar details, they serve different purposes and appear at different stages of a transaction.
What Is a Purchase Order?
A purchase order is a formal document issued by a buyer to request goods or services from a supplier at agreed prices and terms. Once accepted, it becomes legally binding and acts as a control mechanism for procurement.
What Information Does a Purchase Order Contain?
Product list and quantities
Agreed prices
Vendor name and address
Shipping and billing addresses
Delivery due date
Terms and conditions
When Do Companies Use Purchase Orders?
To formalize buying and internal approvals
To track expenditures against budgets
To create legal protection in disputes
To support inventory and financial audits
Key Benefits of Purchase Orders
Reduces misunderstandings with suppliers
Creates legal clarity on terms
Helps prevent stockouts
Improves spend analysis and budgeting
What Is a Proforma Invoice?
A proforma invoice is a preliminary bill sent by the seller before goods are delivered. It outlines estimated prices, quantities, and terms so buyers can review costs before confirming the order.
What Information Is Included in a Proforma Invoice?
Seller and buyer details
Description of goods
Quantity and estimated price
Taxes, fees, and shipping costs
Expected delivery terms
When Does a Seller Issue a Proforma Invoice?
Before a sale is finalized
For first-time customers
To set expectations on cost and delivery
For transport or documentation reference
Key Benefits of Proforma Invoices
Provides cost estimates in advance
Allows negotiation before commitment
Improves transparency
Helps buyers plan budgets
Key Differences Between Purchase Orders and Proforma Invoices
Purchase Order | Proforma Invoice |
|---|---|
Sent by buyer to seller | Sent by seller to buyer |
Legally binding once accepted | Not legally binding |
Payment made after delivery | No payment required |
Final prices agreed | Prices are estimated |
When Should You Use Each?
Use a purchase order when prices and terms are finalized.
Use a proforma invoice when costs need review before confirmation.
FAQs
What is the difference between PO and PI?
A purchase order is issued by the buyer to confirm an order, while a proforma invoice is sent by the seller as an estimate before billing.
Does a proforma invoice come before a purchase order?
Yes, sellers may issue a proforma invoice before the buyer confirms the purchase order.
Is a proforma invoice legally binding?
No, it is a preliminary document and can be revised.
Can you pay against a proforma invoice?
No, payment is made only against the final invoice.
Why do businesses use proforma invoices?
They help buyers review estimated costs and negotiate terms before committing.
