Purchase Order vs Proforma Invoice
4 min read
By
TranZact Solutions Team
· Published
A purchase order is the buyer’s instruction to supply goods at agreed price, quantity, and terms. It becomes binding once the vendor accepts it. A proforma invoice is the seller’s preliminary bill before the sale, confirming pricing or securing an advance. An accepted purchase order is binding; the proforma invoice isn’t, and can’t be used to claim GST input tax credit.
This guide covers what separates the two, and when a manufacturer should expect to see each.
What Is a Purchase Order and What Is a Proforma Invoice?
A purchase order (PO) is a document the buyer issues to a vendor. It confirms intent to buy a specific quantity of goods or services at an agreed price and delivery date. Once the vendor accepts it, it functions as a binding commercial commitment.
A proforma invoice is a preliminary bill the seller issues to the buyer before the actual sale, showing expected price, quantity and terms. It is not a legal invoice and does not create a GST liability or entitle the buyer to input tax credit.
The two documents sit on opposite sides of the same transaction. Different parties issue them for different reasons. They get confused when someone assumes any document with prices and quantities on it is interchangeable.
Purchase Order vs Proforma Invoice: Side by Side
The two documents differ on four points that actually matter for a manufacturer’s paperwork:
Who issues it. Buyer issues a purchase order to the vendor. Seller issues a proforma invoice to the buyer, before any order is confirmed.
When it’s used. A PO confirms an order the buyer has already decided to place. A proforma invoice often comes before that decision. It quotes price and terms, or supports an advance payment or import documentation.
Legal weight. A PO is a binding commercial commitment once accepted. A proforma invoice is not a legal invoice and creates no obligation to pay.
GST treatment. Neither document is a GST tax invoice. A proforma invoice cannot be used to claim input tax credit, since no supply has occurred yet.
When Each One Gets Used in Practice
The choice usually comes down to where the transaction sits in the buying cycle:
Sending a proforma invoice for approval. A vendor quotes price and terms via proforma invoice before the buyer commits, often for a new SKU or a large one-off order.
Raising a PO after accepting the quote. Once the buyer accepts the proforma invoice’s terms, they issue a purchase order to lock in the confirmed order.
Using a proforma invoice for an advance payment. Buyers sometimes need a proforma invoice to release an advance payment before the vendor starts production, especially for custom or imported goods.
Mistaking a proforma invoice for a tax invoice. A common error is booking a proforma invoice into accounts as if it were a GST invoice. That breaks input tax credit claims at reconciliation.
Never issuing a formal PO at all. Some SMEs skip the PO entirely and work off the proforma invoice or a verbal confirmation. That is what causes duplicate or disputed orders later.
Where each document sits in a purchase
Indent raised, RFQ sent to vendors
Vendor sends quote or proforma invoice
Buyer issues PO; vendor accepts
Vendor dispatches with tax invoice
GRN on delivery, then payment
Purchase Order vs Vendor Quotation
Stage: a vendor quotation is the earliest step, an unconfirmed price estimate. A proforma invoice is a more formal pre-sale bill. A PO is the buyer’s binding confirmation.
Issued by: quotations and proforma invoices both come from the vendor; a PO comes from the buyer.
Binding: a quotation and proforma invoice are not binding on either party; an accepted PO binds both parties.
Format: quotations are often informal or verbal; a PO follows a structured format with quantity, price and delivery terms locked.
Manufacturer relevance: a factory should never release material or start production off a quotation or proforma invoice alone. Only a confirmed PO should trigger action.
How TranZact Helps With Purchase Orders
In TranZact, the purchase flow runs MRP report → indent → RFQ → PO → GRN → payment. The PO is its own step, so a proforma invoice never has to stand in for one. The MRP engine runs through your orders and BOMs, then tells you what to buy and when.
MRP and indent come with the Scale and Dominate plans. Accounting stays in Tally, with a one-way sync and no double entry.
It does not replace your vendor negotiation process or decide when to convert a quote into an order. That call stays with your purchase team.
Want to see the purchase flow on your own orders and vendors? Our team will walk you through it.
