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Proforma invoice: Meaning, uses and contents

[ecis2016.org] Proforma invoices are preliminary bills or estimates sent to a customer prior to delivery to ask for payment for goods or services.

What is a proforma invoice?

Proforma invoices are preliminary bills or estimates sent to a customer prior to delivery to ask for payment for goods or services. In a proforma invoice, the goods are described, the amount due is shown, and other details are provided.

Contents of proforma invoice

The following information should be included in a proforma invoice:

  • Number unique to each invoice
  • Preparation/publication date
  • The address of the supplier
  • Prospective purchaser’s address
  • Product or service description, including cost per unit and line-item totals
  • The validity of the proforma invoice
  • Terms and conditions of sale
  • If there are any payment terms proposed
  • If any “Customs Authorities” certifications are required
  • Signed by an authorised representative of the supplier’s company

Why are proforma invoices used?

International transactions often require proforma invoices, especially for customs purposes. In virtually every industry, proforma invoices are used as part of the internal purchase approval process. As all terms have been agreed to in advance, proforma invoices streamline the sales process by removing additional back-and-forth after the sale has been completed.

When are proforma invoices sent?

If a firm wants to ship agreed-upon deliverables or items, a proforma invoice may be sent before shipping. Despite containing the exact cost details associated with the sale, it is not an official payment demand. There is no specific format or presentation requirement for proforma invoices, and they may or may not resemble other commercial invoices.

Is a proforma invoice legally binding?

Proforma invoices have more or less the same information as a final invoice, but it isn’t legally binding and should not be used for accounting. A proforma invoice is more like a quotation or estimate than an actual invoice. 

Can a Proforma Invoice be cancelled?

Since a proforma invoice is not a legally binding document, it’s not necessary to cancel it. 

Proforma invoice format

Proforma invoices should look like regular invoices, except that they are subject to change. It should include the names, addresses, and phone numbers of both the buyer and seller. A detailed list of all items and their prices should also be included.

Distinction among invoice, proforma invoice, estimates and purchase order

Particulars Invoice Proforma invoice Quotation/Estimates Purchase order
Meaning Documents that have detail about the products, quantity and prices. Invoices usually contain payment terms. Provides information about the goods or services that have yet to be delivered to the buyer. Goods or services needed are listed along with the total amount owed. The first official offer from a buyer to a seller, indicating the types, quantities, and agreed prices for products or services. The system is used to control the purchase of products and services from external suppliers.
Objective The buyer is notified that payment is due. To assist the buyer in making a decision regarding whether or not to place an order. To estimate the sale price of goods that have not yet been delivered. The process of ordering goods and/or services from a supplier.
Time of issue Before the supplier receives the payment. Before the buyer receives the goods or services. Prior to delivery of goods and/or services to the buyer. Upon receipt of the quotation / proforma invoice from the supplier.
Raised By Supplier Supplier Supplier Buyer
Issued to Buyer/ Customer Buyer/ Customer Buyer/ Customer Supplier
Effect of Acceptance Confirmation of sale Creation of sale Creation of sale Contract of Sale
Negotiability Non-negotiable Negotiable Negotiable NA

Major changes in Proforma invoices under GST 

The format and content of proforma invoices under pre-GST law and GST law are similar. There are a few differences, however:

  • GST proforma invoice contains GST registration number, while VAT/CST/Sales Tax proforma invoice contains VAT registration number
  • Moreover, the GST proforma invoice contains additional information regarding HSN codes of goods and SAC codes of services
  • Classification of GST into SGST, CGST, and IGST based on whether the supply is intrastate or interstate 

What is the procedure for reviewing proforma invoices?

A seller can increase the price or modify the conditions of an earlier issue proforma invoice. For this reason, whenever there is a change in the content of a proforma invoice, the invoice number should be updated.

Source: https://ecis2016.org/.
Copyright belongs to: ecis2016.org

Debora Berti

Università degli Studi di Firenze, IT

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