A Complete Guide to Understanding Proforma Invoice in Business

Supriya Saxena

Supriya Saxena

Senior editor

Parul Saxena

Chief editor

Last updated: January 20, 2021

One of the safest ways to create business invoices is by using a proforma invoice. This invoicing format saves you from several obstacles that arise while completing your customers’ or buyers’ orders.

If your enterprise conducts business activities dealing with goods and services, it is essential to understand the Proforma invoice.

Looking for Billing and Invoicing Software? Check out SoftwareSuggest’s list of the best invoicing and billing software solutions.

Continue reading this blog to know what is a proforma invoice, its purpose, where to use it, what is its format & how to create a proforma invoice.

What is a proforma invoice?

The proforma invoice means an essential bill of sale, which is sent to buyers in advance. The bill entails a list of all the particular goods or services ordered by the customer, which are yet to be delivered. The bill also contains all the agreed prices that commodities have to be delivered on.

Along with describing the available goods and services, a proforma bill also mentions other important information, such as unique invoice number, applicable taxes, proposed terms of sale and payments, etc.

Pro-forma invoice is typically issued by a supplier or a retailer to a buyer or a customer. This bill does not form part of the ‘books of accounts’ that keeps track of all the financial transactions. Using good billing software, you can easily convert your Proforma invoice into a final sale invoice or tax invoice within a few clicks. The invoicing and billing software can help in saving your time and energy.

What is the purpose of issuing a proforma invoice?

The purpose of issuing a proforma invoice is that it serves as a supplier’s commitment to the buyer. The bill is proof that the supplier will provide the goods at the discussed prices. 

As mentioned, the bill also acts as the understanding of all the contents that will be shipped to the customer. While there are no formal guidelines on a proforma invoice, it is still issued as part of good practice in business activities. The Pro-forma Invoice is a useful document that informs the customer or the buyer about all the product details and payment module.

The best thing about the Proforma bill is that it’s not a finalized sale invoice. The bill saves you from unnecessary administrative work. So, if you don’t have any revisions or even if there are any changes, you can quickly get onto them. 

The invoice is very useful for suppliers, as it mentions clear payment confirmation before delivering goods. On the other hand, the invoice also helps buyers or customers, as they stand a chance to make any modifications in shipment right before the final sale invoice is generated.

How does a proforma invoice works?

A invoice has to be issued by a supplier/retailer to a buyer/customer, and the bill is usually issued before the sale takes place. The purpose of proforma invoices is to carry out a smooth sales and delivery process.

A few common use cases where proforma invoices can turn beneficial for your business are mentioned below-

1. When items may be damaged in transit

If you receive damaged goods, you can simply raise a credit note against your original invoice. Using a proforma invoice, you can easily make all the necessary changes and then return your invoice to generate a final sales invoice.

2. When customers may change their order

If for any reason, a customer changes their mind for a different order after delivery, you will have to either re-raise or credit your initial invoice with a few modifications. You just need to amend your proforma invoice with a few changes and convert it to a final sale invoice.

Also, understand that using a proforma invoice is different from business to business.

Here’s a proforma invoice example

If the buyer thinks the price is too high, they may demand a discount. Accordingly, the buyer may change the number of goods. For construction businesses, this bill can especially be used when the scope of a project may increase. 

With a Proforma invoice, you can be sure to keep the invoicing process straightforward, fast, and easy. It also helps you to cut down the extra admin work.

What information is required on a proforma invoice?

Proforma invoice is pretty much like a regular bill, so it should include the following details:

  • Contact details
  • Date of issue
  • A description of the goods or services provided
  • The total amount due
  • Any VAT

The Proforma invoice might also include payment details or terms and conditions. It can also include which methods of payment you accept and when is the expected date of payment.

What Is the format of the proforma invoice?

Since the Proforma invoice has no formal obligations to fulfill, there are no set guidelines that dictate the exact presentation or format for a Proforma bill. So the bill may look just like a Sale invoice. This is why you need to mention in the header that this is a Proforma invoice, indicating it is not the final and actual sale bill.

 The Proforma Invoice generally follows the following format:

  • Your company name, logo, and address
  • Reference number of the invoice
  • Date of issue
  • Buyers name
  • Correct billing and shipping address (along with the location of supply)
  • A list of the products/services sold
  • Quantities and price of each item/product in the order
  • Any applicable tax rates and the tax amount
  • The total amount that should be paid by the buyer
  • Your payment details
  • Clear terms and conditions regarding the order management, payment, and delivery

How to create a proforma invoice?

Even though a Proforma is not necessarily used for account payable or account receivable, it still is a legal document that can bind the buyer and the supplier to the terms and conditions mentioned in it.

For a supplier, the invoice is an offer to sell. Here are three things a supplier can do to make sure the invoice is created correctly:

  • Calculate your export costs using a cost sheet
  • Determine acceptable costs of the goods you’re selling
  • Cover all issues important to buyers

What Is the best software for creating a proforma invoice?

Some of the best Proforma invoice software are mentioned below:

1. Vyapar

Vyapar is an easy to use GST-ready Invoicing, Accounting, and Inventory management software. Since it is specially designed for a businessman, you don’t have to waste any time learning it. You don’t need to have any expertise in accounting to start managing your business digitally using Vyapar.

Vyapar is a great solution for all your accounting needs. With this, you can manage invoices, payments, inventory, receipts, estimates, and clients. Since it is GST compatible, the tool allows you to create and share GST compliant invoices. You can also tally them, calculate taxes automatically, generate precise financial reports, and file your GST tax returns.

 2. Horizon ERP

Horizon ERP is easy billing software that comes with complete inventory and accounts modules. The solution is fast, reliable, and very easy to maintain. It is ideal for businesses that deal with many invoices and in 100’s of SKUs. This ERP system is mostly used by distributors, small manufacturers, and retailers.

3. TallyPrime

One of India’s leading business management software, businesses use TallyPrime for GST, accounting, inventory, banking, and payroll. Along with being affordable, TallyPrime stands out to be one of the most popular business management software. It is effectively used by over 20 lakh businesses worldwide.

4. Busy accounting software

Busy offers complete accounting software for the medium as well as small-scale businesses. It is used by SMEs across the globe, industry verticals, and customer divisions, including FMCG, Trading, Manufacturing, Retail, Distribution, and Service. The tool helps enterprises manage their business seamlessly.

Supriya Saxena
A logophile by heart, Supriya loves to research and write about the latest technology and trends. She believes that writing is the best medium to influence people in a positive way and has 3+ years of writing experience.

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