If you go to the market and receive a bill marked as Proforma Invoice on your purchase, you may have many questions in your mind?
For example :
Is it binding on the seller, or is there a time limit to act on it?
If you are a supplier, you may have queries regarding whether the form of Proforma Invoice under Goods and Service Tax (GST) has changed?
This blog aims to clear all such doubts and get more information and help regarding Proforma Invoice. The proforma invoice is usually sent to an enquiring customers addressing the approximate amount of goods and services yet to be delivered.
Article Content…
- Proforma Invoice Meaning
- Why Are Proforma Invoices Issued?
- Why is a Proforma Invoice Used in the GST Era?
- Proforma Invoice Format
- What Is the Difference Between Invoice And Proforma Invoice?
- Proforma Invoice and Quotation
- General Terms And Conditions included In Proforma Invoices
- Advantage of using proforma invoices in retail, wholesale business
- FAQs (Frequently Asked Questions)
- Wrapping Up
Proforma Invoice Meaning
Proforma invoice is a document similar to invoice with particulars of the goods/services yet to be delivered to the customer. Some key points are as follows that demonstrate you what is a proforma invoice:
- The expected rates are included in the Proforma Invoice, which includes the details of the products and services to be delivered.
- This is given to the buyer so that he/she may have a sense of the rate estimates and make an educated selection.
- It is sent out ahead of the tax or sales invoice.
- The amount specified in the Proforma Invoice is supposed to be roughly equivalent to the transaction amount.
- The Proforma Invoice is utilized in practically every industry; however, it is most commonly associated with proforma invoice for exports and imports.
Why Are Proforma Invoices Issued?
Suppose a customer wants to buy a bike. Before the sale, the bike company will issue a proforma to the consumer to confirm the purchase order.
If he has any objections, he can tell them before the invoice is issued, and the main invoice will not need to be changed. The bike is delivered within the estimated delivery date if the consumer approves the pricing.
This way, you can consider Proforma as a pre-sales invoice and a seller issue a proforma on the buyer’s request.
It is not documented in accounting by the seller or buyer because it is not a sales bill. However, billing software, such as RetailGraph billing software, may generate Proforma invoices/quotations/sales orders/purchase orders.
Why is a Proforma Invoice Used in the GST Era?
It should be noted that there is no specific law that requires a company to issue a proforma invoice. Many businesses use a proforma invoice as part of their standard operating procedure to guarantee that the transaction and delivery proceed smoothly. Thus, there is no proforma invoice format for GST.
A proforma invoice is a pricing estimate for the items delivered to the buyer. It guarantees that delivery charges are clearly displayed. It informs the buyer/customer of the forthcoming financial obligations they will have to meet when the goods are delivered.
Let’s connect with SWIL’s GST Billing Software and Speed up your Taxing, Invoicing, Billing & Accounting Process.
Proforma Invoice Format
The format of a proforma invoice is not set in stone. You may issue pro forma bills in the same structure as your sales bills, but with a different heading.
Normally, it should contain the following information
- Unique number
- Date of issue
- Address of the supplier
- Address of the prospective buyer
- Description of good and/or services including their unit costs and line-item totals
- Validity of the pro forma invoice
- Proposed terms of sale
- Proposed terms of payment, if any
- Bank Details of supplier
- Certifications required by “Customs Authorities” if any
- Signature by an authorized person from supplier’s company
What Is the Difference Between Invoice And Proforma Invoice?
| Invoice | Proforma Invoice |
|---|---|
| An invoice is issued when sales are made. | Proforma Invoice is a document similar to an invoice but issued before the final invoice, so buyers get aware of the price, quantity, additional charges, and terms/conditions. |
| Invoice is more important. | It is not mandatory. Generally used in import and export transactions. |
| An invoice is a legal document. | It will not create any binding upon the client as it is not a legal document. |
| An Invoice is sent to the purchaser of the product or service confirming that the sale occurred and the payment is due. | On the other hand, Proforma Invoice is an estimate sent before the delivery, but it mentions the particulars of goods and services along with the costing. |
| The invoice format includes full information such as logo, billing addresses, contact information, other billing details, and terms and conditions. | The same information is included in a proforma invoice; however, it is noted on the top as “Proforma Invoice.” |
| Invoices should be filed appropriately since they are utilized for accounting and auditing purposes. | Proforma invoices are not necessary for accounting purposes because they are only a notification to the client. |
Proforma Invoice and Quotation
Proforma invoices are often sent at the end of the sales process, whereas quotations are issued at the initial stage.
Quotations may not include the number of items, bank account information, and, rather than providing full details of additional costs like tax and shipping, most quotations state at the end that tax and shipping are extra.
General Terms And Conditions included In Proforma Invoices
Proforma invoices, like invoices, can include terms and conditions. Mainly it includes payment conditions, warranty terms, installation or delivery terms, and information regarding after-sales services should all be included.
If a third party gives the seller’s warranty, it’s a good idea to mention it as well.
Advantage of using proforma invoices in retail, wholesale business
The key benefit of a proforma invoice is that it is not a finalized sales invoice. Therefore it does not need to be revised if the items or services you supply change.
It is useful when items may be damaged when in transit
If your customer’s products are damaged when they arrive, you’ll usually have to issue them against the original invoice. You can take any actions to resolve t a proforma invoice before converting it into a complete sales invoice.
It is useful when customers may change their order
When a customer cancels an order after it has been delivered, your invoice will be false, and you will need to re-raise it. A proforma invoice can simply be restructured and converted to a full invoice.
It is useful when project scope may increase
You’ll need to send out additional invoices if you’ve quoted to deliver a service and discover that more work is required than you anticipated. You only complete the sale after verifying the entire scope when you use proforma invoices.
FAQs (Frequently Asked Questions)
What benefits does the proforma invoice offer?
Ensures a seamless sales process.
Contains all the necessary, relevant data that the customer requires.
Not a legally binding agreement. Allows the details to be discussed or changed.
Ensures that both the buyer and the seller are aware of the agreement.
Is the proforma invoice legally binding?
It is not a legal document. A pro forma invoice differs from a basic price quote in that it contains a binding agreement even though the sale details are flexible.
What does a proforma invoice not include?
A proforma invoice is an estimate rather than a thorough transaction record like a formal invoice. You should hold off on making payments as a buyer until you receive a bill of sale and/or a final invoice.
Is a proforma invoice tax deductible?
A proforma invoice shows an estimate of the price the buyer will be charged for purchasing goods or services from the seller. A proforma invoice estimates the product’s expenses but ignores taxes.
Wrapping Up
A proforma document is a customer’s confirmation request prior to shipping or delivery. On the other hand, a conventional tax invoice is issued requiring payment on a concluded agreement. I hope the above blog gives you detailed information about the proforma invoice and its purpose.
So, if you want to include it in your business and know how to include it in your business, let’s connect your business with the SWIL GST compliance billing Software solution.
The billing software has an in-build feature to generate proforma invoices. In short, you can say that SWIL also offers a proforma invoice software facility.
With SWIL software, you will definitely have the solution that creates and send GST tax invoices and pre-sales proforma invoices in just a few clicks. For more information, kindly contact our SWIL team. They will help you in the best possible way.
