What Is a Proforma Invoice?

A proforma invoice is a document used when a transaction or sale is proposed. Once a buyer and a seller have agreed upon the terms and conditions of a particular transaction, the seller can raise a proforma invoice. The proforma invoice helps the seller document the price and other details of the transaction and get a confirmation from the buyer on the details. It is a way for the buyer to understand what to expect from the seller and keeps the entire process transparent.

This document is crucial when a new transaction is meant to happen as it allows both parties to achieve complete clarity on the proposed sale. Once the buyer and seller have agreed on the details of the proforma invoice, the seller can confidently proceed to the sale, being assured of the fact that the buyer will go ahead with the purchase as promised.

Where Can You Use a Proforma Invoice?

A proforma invoice is a useful document for both the seller and the buyer when a particular transaction is to be done. There are multiple use cases of a proforma invoice as mentioned below:

Contract or project-based

As an SME manufacturer in India, you may work on multiple clients across multiple projects. When there is a job that has a defined timeline, it can be considered a contract, and a proforma invoice is used for clarity.

Consulting-based

When a particular job has a recurring theme to it, such as a consultant project, a proforma invoice can come into play. Often, the scope of work evolves from month to month for a consultant, who can use a proforma invoice to give their client an indication of the following month's terms.

Freelance-based

When a business hires a freelancer for a project, the freelancer can raise a proforma invoice for each project they execute for the client.

Contents of Proforma Invoice

Since a proforma invoice is not legally binding, there are no mandatory rules on what it needs to contain. A proforma invoice can contain all the details that a buyer and seller deem to be necessary for a particular transaction. If you're wondering how to make a proforma invoice, ensure you have at least the following fields:

• The words 'Proforma Invoice' are clearly visible at the start of the document.

• The relevant company and contact details of the buyer.

• The relevant company and contact details of the seller.

• The date of creation of the invoice.

• A description of the goods or services for the purchase in question.

• The total price associated with these goods or services.

• Any applicable taxes on the intended purchase.

• Any other particular terms and conditions that have been agreed upon.

• The date of expiry when the proforma invoice is valid until.

Benefits of Using Proforma Invoice Format

As a business owner, whether you are on the buyer side or the seller side, you will find that there are many advantages to using a proforma invoice format. Listed below are the key benefits you will enjoy:

Save precious time:

When you use a proforma invoice format, you will not need to go and create a new template each and every time you need to issue a proforma invoice. Simply use the format and populate it with your details.

Increase productivity:

The right proforma invoice sample will allow you to manage multiple transactions at the same time and process them successfully. When you operate at scale, this can mean an increase in your overall productivity.

Complete clarity:

A proforma invoice format allows you to easily describe the details of your particular transaction, making it clear for all parties involved thereby increasing transparency in the whole process.

FAQs on Proforma Invoice Format

What is the difference between a proforma invoice and an invoice?

The main difference is that a proforma invoice is issued before a transaction to validate all the details, whereas an invoice is issued after a transaction is complete.

Why is a proforma invoice issued?

A proforma invoice is issued so that both buyer and seller can have a documented agreement on the intended purchase and all its details.

Who prepares proforma invoices?

A proforma invoice is prepared by a seller and shared with a buyer to provide a potential customer with an estimated cost for goods or services before finalizing a transaction.

What is the legal validity of a proforma invoice?

A proforma invoice does not have any legal validity and cannot be considered to be legally binding.

What is the difference between a proforma invoice and a quotation?

The primary difference between these two is that a proforma invoice contains the details that have already been agreed upon by the two parties. On the other hand, a quotation is an estimate that the seller shares with the buyer who can choose to accept or reject.