What is a proforma invoice?

A proforma invoice is a quotation dressed as an invoice. It lists what you are going to supply, what it will cost and on what terms — in the layout of a bill, so a buyer can circulate it, approve it and budget against it. What it is not is a demand for money.

That single distinction decides everything else about it: how you number it, whether it enters your accounts, what tax you charge on it, and what has to follow it.

Why it is not a bill

An invoice records that a debt exists. A proforma records that one might. It is issued before the work is done or the goods have shipped, at a point where nothing is owed yet, and it has four consequences that catch people out:

• It does not go in your books. No revenue, no receivable, nothing to reconcile. It is a document you sent, not a transaction that happened.
• It must not take a number from your invoice sequence. Your invoice numbers have to be unique and unbroken — see invoice numbers — and spending one on a document that may never become a sale is how a gap appears that you cannot explain later. Use a separate series: PF-001, not INV-014.
• It is generally not a valid document for reclaiming tax. In most VAT and GST systems the buyer needs a real tax invoice to recover input tax. A buyer who files your proforma instead will come back for the real one, usually at the worst possible moment.
• It can expire. Because it is an offer, it should say for how long it stands. Thirty days is conventional.

When you would send one

Four situations account for almost all real use:

Getting a purchase order raised. In many companies nobody can commit money without a document to attach to the request. A quote in an email is not that document; something that looks like an invoice is. The proforma exists so the buyer's own process can start.

Asking for payment in advance. New client, large job, or a deposit. You want the money before the work, but you cannot issue an invoice for work that has not happened. The proforma states the amount and the terms, the client pays, and the real invoice follows.

Shipping goods across a border. Customs needs a declared value before the shipment arrives, and often before it leaves. A proforma serves for the quotation stage; once the goods actually ship it is replaced by a commercial invoice, which is the document customs actually clears against.

Giving a formal price to somebody comparing suppliers. A proforma is harder to misread than an email, and it puts your terms in writing without creating an obligation on either side.

What it has to say

Everything a real invoice carries, plus three things it does not:

• The words "Proforma invoice", prominently. If a reader has to work out which kind of document this is, you have already failed. Some buyers' systems reject anything ambiguous.
• "This is not a tax invoice" or equivalent. One line, and it prevents the buyer filing it as one.
• A validity date. "Valid until 30 September" turns an open offer into a closed one.

Then the ordinary contents: who you are, who it is for, a dated line, an itemised list of what is being supplied, the price of each line, the tax that would apply, the total, and the payment terms. See what an invoice must contain — the list is the same, and the proforma differs only in what it claims.

Proforma, quote and invoice, side by side

What has to follow it

A proforma is always temporary. Once the work is agreed, done or shipped, you issue the real invoice — with a number from your real sequence, dated when the supply actually happened, and carrying the tax treatment that actually applies.

This is where the most common mistake happens: the client pays against the proforma, the money arrives, and because it feels finished nobody issues the invoice. Now you have income with no invoice behind it, a buyer who cannot reclaim their tax, and a reconciliation that will not close. If a proforma gets paid, the real invoice still has to be raised — same amount, real number, and it is helpful to note the payment already received on it.

Three mistakes worth avoiding

• Numbering it in your invoice sequence. Covered above, and it is the one with consequences you meet months later, in front of an auditor.
• Leaving off the word "proforma". A document that looks exactly like an invoice and is not one will be paid, filed and reclaimed against as though it were.
• Treating it as a sale. A pipeline full of proformas is a pipeline, not revenue. Nothing has been earned until the supply happens.

If you need the real one afterwards, the free invoice generator will write, calculate and send it — no account needed. And invoice versus receipt covers the document at the other end of the same sale.