A proforma invoice is a preliminary bill of sale that a vendor sends to a prospective customer before a sale is confirmed. Proforma invoices outline the details and costs of a product or service before the transaction takes place.
A proforma invoice is a way for the buyer to show the seller how much they’ll need to pay once they receive their goods or services. They’re typically used when a buyer has confirmed the sale, but there are still a few details to iron out, such as quantity, materials, or delivery date.
Businesses use proforma invoices between the confirmation of the sale and the point when the transaction actually takes place. They act as a gesture of good faith so the buyer knows exactly what to expect when they receive their final sales invoice.
Proforma invoices look very similar to a standard conventional invoice, but there are several points of difference to consider that can impact the invoicing process. Let’s explore this in greater detail.
Proforma vs commercial invoices
The easiest way to understand a proforma invoice is to examine how it differs from the regular invoices you’re already familiar with. Here are four essential differences:
| Aspect | Proforma Invoice | Conventional Invoice |
| Purpose | This is sent when the sale is confirmed, and the sale is incomplete to help the buyer understand costs. | This is sent after the sale is confirmed to request payment. |
| Legal Status | Not legally binding. It does not request payment. | Legally binding and requests payment. |
| Invoice Content | Clearly labelled as ‘proforma’ with no due date for payment. | This includes the due date for payment and all relevant details. |
| Modifications | It can be modified or adapted based on negotiations. | Typically final, unless corrections are needed due to mistakes. |
As you can see, proforma invoices aren’t a formal request for payment and don’t have any legal backing. They exist primarily to ensure the seller and the buyer are on the same page about the upcoming transaction. They also act as a gesture of good faith, giving the buyer confidence there are no hidden costs.
Quotes vs proforma invoices
The difference between proforma invoices and quotes is a little more nuanced. On the surface, they look incredibly similar. Both come early in the sales process, neither are legally binding, and each provides an estimated total cost. However, there are some important distinctions.
A quote (or estimate) is a ballpark cost provided by the seller to the buyer. It is a preliminary document provided during the procurement process to help the buyer decide whether they want to buy from a business.
In contrast, when a business sends a proforma invoice, the buyer has typically already confirmed they intend to buy the product or service. These invoices are more clearly defined and outline the final terms of a sale rather than just offering a ballpark estimate of costs.
A proforma invoice is more formal and definitive than a quote. They’re a way for business owners to formally outline the costs a buyer should anticipate without legally obligating them to pay.
What is the difference between a proforma invoice and a Bill of Lading?
Important distinctions exist between a proforma invoice and a bill of lading that are essential for efficient business transactions. I’ve created this table below to help simply their key differences and roles in the shipping and invoicing processes.
| Feature | Proforma Invoice | Bill of Lading |
| Definition | A preliminary invoice is sent to buyers in advance before the actual transaction. | A legal document issued by a carrier acknowledging receipt of goods for shipment. |
| Purpose | To provide a detailed estimate of costs and terms of sale, helping the buyer and the seller agree before completing the transaction. | To serve as a contract of carriage and receipt of goods shipped, crucial for business resources in logistics. |
| Legal Status | It is not legally binding and serves as a quotation or proposal for business health assessments. | A legally binding document outlining the agreement between the shipper and the carrier. |
| Content | Includes details such as product descriptions, quantities, prices, and terms of payment, which may be subject to change. | Includes details about the shipment, such as the type of goods, their condition, destination, and shipping terms. |
| Timing | Provided before the transaction to facilitate negotiation and planning, often used as a receipt template for record-keeping. | Issued after the goods are shipped and serves as proof of shipment for accounting tools and processes. |
| Use in Payment | It can be used by buyers in advance to arrange payment or financing before the actual sale. | Used by the consignee (recipient) to claim the goods upon arrival, playing a role in invoice requirements for accounting purposes. |
| Customs Purpose | It may be used for customs purposes to estimate duties and taxes before shipping, similar to product updates for import regulations. | Often required for customs clearance at the destination, acting as a critical document in the industry type of logistics and shipping. |
When to use a proforma invoice?
At this stage, you might be wondering why it’s worth sending a proforma invoice at all. Aren’t they just a combination of a quote and a commercial invoice?
That’s partially true, but proforma invoices have important use cases that can help you when running your business. Here are some scenarios to consider:
- Internal purchase approval: Proforma invoices show the buyer the cost of goods or services in advance, allowing them to budget for the expense.
- Pre-payment agreements: While not legally binding, proforma invoices are more defined than quotes, making them useful for customers evaluating different businesses.
- International trade: Proforma invoices are often required for clearing goods in international shipping due to their clear statement of estimated costs.
What are the benefits of a proforma invoice?
Why incorporate proforma invoices into the sales process at all? Let’s take a look.
1. Clarification
Sending a proforma invoice ensures you and your customer are on the same page about the service you’re providing and the price to pay. This gives them confidence in the purchase and allows them to budget for the expense.
2. Informal agreement
While a proforma invoice isn’t legally binding, it does act as a good-faith agreement between you and your buyer. This prevents the deal from ‘going cold’, making it more likely you’ll finalise the sale. It will also help to avoid disputes surrounding costs when the final invoice arrives.
3. International clearance
Banks and government agencies typically require proforma invoices when attempting to ship goods across borders. They’re advantageous when securing export licences or obtaining trade finance.
4. Showing professionalism
Aside from these benefits, a proforma invoice shows your customers that you’re professional and trustworthy. They’ll appreciate the fact you aren’t keeping your cards close to your chest, helping with customer loyalty.
How to label a proforma invoice?
The proforma invoice should be clearly labelled to distinguish it from a conventional invoice. Customising your invoice with accurate details ensures transparency and avoids confusion during the transaction process.
- Date of issue: List the date when you issued the invoice. Note the proforma invoice doesn’t require a payment due date.
- Seller details: The proforma invoice includes the details of the seller, like the company name and address, plus contact information.
- Buyer details: The proforma invoice also needs to include all necessary buyer information.
- Description of goods/services: Briefly outline the product or services you’re providing.
- Total amount due: If you have a final cost, include it. If not, provide an accurate estimate for the buyer’s review.
- Shipping costs: If applicable, list the shipping costs the buyer will pay for their order.
- Payment terms: When the final invoice arrives, how will the buyer pay you? Including these details will help with the buyer’s preparations.
- Terms and conditions: Include any TOCs, such as a validity period, delivery terms, currency requirements, cancellation policies, and applicable taxes.
If there are any details you can’t yet clarify, don’t worry. You’ll have the chance to negotiate any remaining details with the seller and fill in the blanks before you send your final commercial invoice.
Remember to clearly label your document as a proforma invoice. As the proforma invoice looks deceptively similar to a conventional invoice, it’s important to distinguish between the two to avoid confusion.
What about invoice numbers?
A proforma invoice should not have an official invoice number — you won’t want it to get mixed up with your commercial invoices.
However, you should include some form of reference number so it’s easy for you and your customer to retrieve it if needed.
How to create a proforma invoice?
Now that you understand the essential components of a proforma invoice let’s walk through the process of creating one step by step.
Step 1: Work out the details
Before you create a proforma invoice, you’ll need to understand the costs of your product or service. Estimate everything your committed buyer will need to pay, factoring in additional costs and fees.
You should also determine any terms and conditions you’d like to present to your buyer at this preliminary stage. While you won’t have all the details on hand, the more accurate and clear you can be at this point, the better.
Step 2: Include all key components
Using a proforma invoice template or even a standard invoice template is the easiest way to start creating your proforma invoice.
From there, you can fill in all essential details, such as the issue date, contact details, product/service specifications, and cost. If you’re creating your proforma invoice to export your products, you should also specify the country where your goods were manufactured.
Remember to specify that this is a proforma invoice rather than a formal commercial invoice. You should also specify that the invoice isn’t a tax document for the same reason.
Step 3: Add terms and conditions
Add any additional terms that your buyer should be aware of. For example, you may like to include a validity period for the invoice. You can also specify how the buyer will need to pay and their rights if you fail to deliver within a certain timeframe. Lastly, include a cancellation policy.
Step 4: Send the invoice and negotiate
Remember that the proforma invoice isn’t set in stone. Once you’ve sent it, be open to negotiation with your buyer. This is the best chance to work through any remaining details and ensure the transaction goes smoothly.
What are the different types of proforma invoices?
There are three main types of proforma invoices that business owners can leverage to enhance transaction efficiency, clarify billing expectations, and improve client communication. These include the following:
| Type of Proforma Invoice | Description | Example |
| Standard proforma invoice. | Used for general sales transactions of products, outlining items, quantities, prices, and total amounts. | 100 widgets at $5 each. |
| Service proforma invoice. | Designed for billing services rendered, detailing the type of service, hours worked, and hourly rates. | 10 hours of marketing consulting at $200 per hour. |
| Recurring revenue proforma invoice (SaaS). | Used for subscription services or ongoing contracts, outlining regular billing amounts and schedules. | A monthly subscription service costing $100,000 per month. This is more commonly used with SaaS companies that have enterprise clients. |
It’s important to note that various proforma invoices are tailored for specific purposes, such as freight forwarding, customs, project work, down payments, estimates, and quotes. I’ve included the three most common proforma invoices in the table above to help keep things simple.
Proforma invoice templates
Below, I’m sharing three of the most commonly used proforma invoice templates for sales, services, and recurring revenue:
1. Standard proforma invoice template for Australia and New Zealand
[Your Company Name]
[Your Company Address]
[City, State, Postal Code]
[Phone Number]
[Email Address]
[Business Registration Number] (varies by country)
- Australia: ABN (Australian Business Number).
- New Zealand: NZBN (New Zealand Business Number).
Proforma Invoice
Invoice Number: [#]
Date: [Date]
Due Date: [Due Date]
Bill To:
[Client Name]
[Client Address]
[City, State, Postal Code]
| Description | Quantity | Unit Price | Total |
Subtotal: [Subtotal Amount]
GST (if applicable): [Tax Amount]
- For Australia: Include GST at 10%.
- For New Zealand: Include GST at 15%.
Total Amount Due: [Total Amount]
2. Standard proforma invoice template for Australia and New Zealand
[Your Company Name]
[Your Company Address]
[City, State, Postal Code]
[Phone Number]
[Email Address]
[Business Registration Number] (varies by country)
- Australia: ABN (Australian Business Number)
- New Zealand: NZBN (New Zealand Business Number)
Proforma Invoice
Invoice Number: [#]
Date: [Date]
Due Date: [Due Date]
Bill To:
[Client Name]
[Client Address]
[City, State, Postal Code]
| Description | Hours Worked | Hourly Rate | Total |
Subtotal: [Subtotal Amount]
GST (if applicable): [Tax Amount]
- For Australia: Include GST at 10%.
- For New Zealand: Include GST at 15%.
Total Amount Due: [Total Amount]
3. Recurring revenue proforma invoice (SaaS) template for Australia and New Zealand
[Your Company Name]
[Your Company Address]
[City, State, Postal Code]
[Phone Number]
[Email Address]
[Business Registration Number] (Varies by country)
- Australia: ABN (Australian Business Number)
- New Zealand: NZBN (New Zealand Business Number)
Proforma Invoice
Invoice Number: [#]
Date: [Date]
Due Date: [Due Date]
Bill To:
[Client Name]
[Client Address]
[City, State, Postal Code]
| Description | Billing Frequency | Amount |
Subtotal: [Subtotal Amount]
GST (if applicable): [Tax Amount]
- For Australia: Include GST at 10%.
- For New Zealand: Include GST at 15%.
Total Amount Due: [Total Amount]
What are the best practices for using proforma invoices?
Proforma invoicing is rather straightforward once you get the hang of it. Still, it’s important to keep a few things in mind while you’re getting started:
Clarity and accuracy
Proforma invoices may not be final, but it’s essential to be precise. This is your opportunity to give your buyer confidence in your business — if your final bill is too different to your proforma invoice, they may feel short-changed. Include all of the details you have available and try to get your costs as close to actual as possible.
Negotiation
Equally, you should be willing to negotiate. Based on your buyer’s feedback, be prepared to adjust pricing, shipping costs, delivery dates, and any additional terms and conditions. Here are some tips for negotiating when using proforma invoices.
- Itemise your prices: Break down costs in your proforma invoice so your buyer can easily see exactly what they’re paying for. This lets your customer negotiate specific aspects of the costs rather than the entire service.
- Keep it efficient: Don’t waste too much time negotiating if it isn’t in your best interests. If your buyer isn’t happy with the price and isn’t open to compromises, ask yourself whether they’re really interested in the service you’re offering. If not, you may be spending too much time on a cold lead.
- Ask for a deposit: Buyers often negotiate payment plans for large projects rather than paying everything upfront. This is usually acceptable for most businesses, but you should request an upfront deposit to minimise risks.
- Bundling additional services: One simple way to streamline the negotiation stage is to offer complementary services. You can use this to add financial value to your offering and boost customer satisfaction without compromising the price of your goods or services.
Conversion to final invoice
Converting your proforma invoice to a formal invoice is straightforward. Remember to add an invoice number and specify a due date for payment. You’ll also need to detail any regulations, rules, and TOCs you left out of the proforma document.
If you’ve changed any details, such as the final cost, it’s important to inform your buyer to avoid any unwelcome surprises.
Technology and proforma invoices
Some businesses ignore proforma invoices because they think the process takes too long. But this is no longer the case.
You no longer necessarily need an accountant or bookkeeper to arrange your proforma invoices. Invoicing software simplifies the process and lets you create accurate, professional documents using predefined templates.
This means you won’t need to waste your working day manually creating fields and tediously inputting data. You can simply find the ideal template, fill it out with your information, and export it to send. The software will also catalogue all of your documents so you can easily find them at a later date.
Invoicing and accounting software will also sync with your CRM software. This means you can bill customers directly from your CRM interface, allowing you to control the entire customer journey from lead generation to conversion.
With Salesforce, you can integrate invoicing software directly into our CRM platform. This streamlines your sales funnel, meaning you can take customers from brand awareness to the point of sale and beyond with complete visibility over the entire journey.
Summing up
Proforma invoices are an easy way to keep your customer in the loop before finalising the transaction details. They alleviate doubt, instil confidence in your potential buyer, and increase the likelihood that they’ll see the sales process through to the end.
The best part about proforma invoices is that they’re easy to set up with the right invoice software. And when you link that software with your CRM, invoicing will become a seamless part of your sales pipeline.
Salesforce can help you manage the entire sales process from start to finish. Our AI-driven platform links all of your data and each of your teams in one place, giving you a 360 view of the customer journey. With thousands of apps that integrate seamlessly into our platform, you can guide customers to the point of sale and create effective invoices that get you paid on time.
Ready to simplify your invoicing process? Salesforce CPQ streamlines the quoting process, enabling sales teams to quickly generate accurate quotes and proforma invoices. With Salesforce CPQ, you can configure products, set pricing, and create professional-looking quotes, ensuring consistency and reducing manual errors in invoicing.
FAQs
When should I send a proforma invoice?
Unless your buyer requests it earlier, you should send the proforma invoice you’ve agreed on for the final price — typically after the quote but before the final invoice. You can also send out a proforma document as part of your export documentation for customs purposes.
Is a proforma invoice a legally binding agreement?
Proforma invoices are not legal documents, which is why it’s important to label them correctly. You don’t want your buyer to think you’re demanding payment and that they’re legally obliged to act on the proforma invoice. This could cause unnecessary confusion.
Can a proforma invoice be cancelled?
Yes. A proforma invoice isn’t legally binding, and it can be cancelled at any time. If your buyer backs out of the deal, there’s no need to take action to edit the invoice or cancel it.
Can I use a proforma invoice for tax purposes?
You can’t use a proforma invoice for tax purposes as it isn’t considered an official sales invoice. This means it has no legal standing or impact on VAT or GST.
