Proforma invoice: What it is and how to use one (2024)

In this guide, we’ll delve into the concept of proforma invoices, examining what it is, when to use them and highlighting their significance in Australia.


In this guide, we’ll delve into the concept of proforma invoices, examining what it is, when to use them and highlighting their significance in Australia.

Have you ever found yourself in a situation where the customer wants a preliminary bill of sale before the product or service is delivered?

That’s where a proforma invoice comes in handy.

This guide aims to provide a deeper understanding of what a proforma invoice is, when and how to use it, its relevance in Australia, and the advantages and disadvantages it brings to the table.

What is a proforma invoice?

A proforma invoice is a preliminary document provided by a seller to a potential customer, presenting the particulars and expenses associated with a product or service.
Unlike an actual invoice, a proforma invoice is issued in advance of the completion of work, serving as a declaration of intent to provide goods or services that are yet to be delivered.

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When are proforma invoices issued?

Proforma invoices are generated at the initial stages of a transaction, usually when there is a commitment from the customer to proceed with the purchase.

Proforma invoices provide an overview of the expected transaction details, allowing for necessary adjustments before the final invoice is prepared and delivered upon the completion of the transaction.

Proforma invoice example

Consider a scenario where a restaurant accepts the cost of catering on a proforma invoice, scheduling food delivery for a later date. Payment is settled upon receipt of the official invoice, ensuring alignment with the proforma invoice amount.

Here is an example of how the proforma invoice could look like:

How to create a proforma invoice

Generating a proforma invoice is a straightforward process, similar to regular invoices.

Many accounting or invoicing software packages offer pre-designed proforma invoice templates. Alternatively, tools like Microsoft Word and Google Docs allow you to craft your own.

Here is a simple step-by-step guide on how to create proforma invoices:

1. Create a professional template

Create a template or use invoicing software to craft a polished invoice, with your logo and branding. Clearly label the document as a “Pro forma invoice” to make it clear that the regular invoice will come later.

2. Add company and contact details

Ensure the recipient can easily identify the sender by prominently featuring the company name and information. Additionally, include the customer’s details.

3. Break down costs

Provide transparency by detailing the cost breakdown. Specify the services you will deliver, their quantity, duration, and unit price. Include sections for the total cost of goods and services (pre-tax and pre-discounts), any applicable discounts, taxes, and the net total.

4. Save and dispatch the proforma invoice

Proforma invoices can be sent through various channels, including email, fax, or mail. Timely delivery allows the buyer to review and decide. Clear, concise proforma invoices containing all relevant information about the goods or services facilitate the decision-making process.

The fields in a proforma invoice

A typical proforma invoice includes:

  • Document title: “Proforma Invoice”
  • Buyer’s details (company name, billing and shipping addresses)
  • Seller’s details (company name and address)
  • Payment terms
  • Invoice creation date
  • Invoice expiration date
  • Description of goods or services
  • Prices of goods or services

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

An invoice is sent post-confirmation, serving as a legally binding document requesting payment for delivered goods or services.

In contrast, a proforma invoice is a preliminary document sent before confirmation, outlining deliverables, prices, shipping details, and delivery date. Although not legally binding, it aids in streamlining processes, acting as a quote for internal purchase approval, and saving time and costs.

Advantages and disadvantages of proforma invoices

Proforma invoices offer several benefits:

  • Informing the buyer about the supplier’s offerings.
  • Demonstrating the supplier’s commitment to agreed prices and delivery dates.
  • Acknowledging the buyer’s intent to pay.
  • Streamlining the quote-to-cash process.
  • Serving as a quote for internal purchase approval.
  • Reducing processing time and costs.
  • Cons of proforma invoices.

Drawbacks of proforma invoices include:

  • Lack of legal binding.
  • Potential confusion for unfamiliar buyers.
  • Time-consuming creation and delivery.

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Frequently asked questions

Are proforma invoice legally binding?

No, proforma invoices are not legally binding. They serve as a preliminary document sent before sale confirmation, outlining deliverables, prices, shipping details, and delivery date. The buyer can confirm, negotiate, or reject the offer.

Can one claim tax on a proforma invoice?

No, tax cannot be claimed on a proforma invoice. It is not legally binding and serves as a preliminary document before sale confirmation. Tax invoices, being legally binding, are used for requesting payment after goods or services are delivered.

Can a seller cancel a proforma invoice?

Yes, a seller can cancel a proforma invoice. As it is not legally binding, the seller can cancel it if the buyer rejects the offer or if there are negotiations that lead to no agreement.