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Invoice vs. proforma invoice: What’s the difference?
If you send invoices, you've probably heard the term ‘proforma invoice’. But one of the most common invoicing issues for freelancers and small business owners is knowing how proforma invoice differs from a standard invoice.
In this blog, I explain what a proforma invoice is, how it’s different to a standard invoice, and how you can quickly and easily create proforma invoices with invoicing software.
What is a proforma invoice?
A proforma invoice is sometimes used as a replacement for quotations, and the two serve a very similar purpose in the sales process. Proforma invoices are essentially used as draft invoices; they can be sent to a customer before you know all of the details of the sale and before you’ve finalised terms, conditions and prices.
Proforma invoices can be a helpful reference point for you and your customers, and they help ensure that every order you receive meets terms both you and your customer are happy with.
How is a proforma invoice different for a normal invoice?
A proforma invoice is not a true invoice and, unlike a standard invoice, a proforma invoice is not a legal document. This means that a customer has no obligation to pay for the products or services listed on a proforma invoice.
Because a proforma invoice is essentially a draft invoice, the template for a proforma invoice is very similar to a true invoice. A proforma invoice should therefore include:
- A description of the goods and services to be provided
- The price, quantity and units of the goods or services
- Date of issue
- Contact information for both you and your customer.
- Proposed payment terms (although these are not yet binding)
- Any discounts you wish to provide
- Amount of VAT due (if applicable)
- Subtotal before VAT.
However, there are some important difference between a proforma invoice and a true invoice. Firstly, a proforma invoice should not have an invoice number. Secondly whereas an actual invoice must clearly state the word ‘invoice’, it should be clear that a proforma invoice is not a true invoice. According to HMRC regulations, a proforma invoice should say ‘This is not a VAT invoice', and you should also clearly state ‘proforma invoice’ somewhere on the document.
How do I create a proforma invoice?
The quickest and easiest way to create a proforma invoice is with invoicing software.
Within accounting & invoicing software like Debitoor, you can add saved customers and products to new proforma invoices so that you don’t have to spend time entering all of their details. As well as this, subtotals and VAT are calculated automatically, saving you the time and trouble of calculating the amounts yourself.
Not only is this faster than creating a proforma invoice from scratch, but, with invoicing & accounting software, you can also convert a proforma invoice to true invoice with just a few clicks.
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