Sales Entry in Tally Prime 2024: Item, Voucher, Accounting Invoice Method
October 5, 2023

What is Proforma Invoice? Meaning, Format, Template 2024

Workflow of Proforma Invoice

A Proforma Invoice (also Pro Forma) is a provisional document issued by a seller to a potential buyer before the sale transaction is completed. It serves as a preliminary bill of sale, outlining the terms and details of a possible trade, estimated costs, taxes, shipping charges, weight, dimensions, and so on.

A proforma invoice has three major characteristics.

  • It is issued before the deal is finalized but after the price is negotiated.
  • It is not a legally binding document and does not initiate a demand for payment or supply.
  • It contains all details related to sales.

Example: Imagine you’re a manufacturer on the about to seal a deal from a buyer abroad. Your potential buyer before confirming the deal asks for the following details—cost breakdowns, applicable taxes, potential discounts, product dimensions, weights, shipping costs, etc. for internal approval.

You cannot issue a GST invoice, as the deal is not confirmed yet and an invoice will be legally binding. Therefore, a proforma invoice is used which could convey all the details to the buyer on how the exact deal would look like.

Let’s explore in detail what is Proforma of invoice really is, when it is used, and how is it different form tax invoice, quotation/estimate. This blog would also inform about Proforma invoice format, example and how you can create one using excel template.

Why is Proforma Invoice Used?

Proforma invoices are crucial for businesses with robust procurement processes. Here are some reasons potential buyers might ask for proforma invoices.

  • 1. International Trade and Customs Clearance: Contains detailed information for customs clearance, including weight, value, taxes, and shipping costs.
  • 2. Internal Purchase Approval: Allows procurement heads to take approvals from required departments and arrange funds.
  • 3. Advance Payment Clearance: Foreign exchange regulations of many countries could ask for a proforma invoice before allowing an entity to make an advance payment to the seller abroad.

Format of a Proforma Invoice

The details to be mentioned in proforma could vary depending on the nature of goods/service, location of the buyer and seller and requirement of buyer.

Details Explanation
1. Title and Date The document should mention “Proforma Invoice”.
2. Party Information
  • Seller’s Details: Name, Address, Contacting Information, GSTIN, VAT no. or Sales tax number.
  • Buyer’s Details: Name, Address, Contacting Information, Buyer Reference, GSTIN or other Tax identification number.
3. Description of Goods or Services
  • An itemized list of products or services
  • Quantity
  • Unit Price
  • Total Price for each line item
4. Shipping and Payment Term Details
  • Mode of transport, Estimated delivery date, Shipping costs
  • Agreed-upon payment terms (e.g., net 30 days) and Mode.
5. Discounts, Taxes and Duties
6. Authorized Signature
7. Disclaimer A statement indicating that the proforma invoice is not a final but a preliminary estimate.

Proforma Invoice Example

There could be different types of proforma invoices depending on the buyer’s requirement and the general practices of the country on which the buyer or seller is based.

Here is a typical example of proforma invoice.


How to Make a Proforma Invoice?

There are three major ways to create proforma invoice.

  • Using Billing Software: Invoicing software is one of the most efficient ways to create proforma invoices. Almost all accounting and invoicing software solutions offer proforma billing features allowing users to create proforma bills just like creating invoices. Simply input the necessary details, and the software will generate a professional-looking proforma invoice, ensuring accuracy and compliance.

    HostBooks Cloud Accounting Software has proforma and quotation features with the option to directly email the pro forma invoice to a customer.

  • Proforma Bill Books: Traditional proforma bill books are physical documents containing pre-printed proforma invoice templates. These can be purchased from stationery stores or customized through printing services. To create a proforma invoice using bill books, fill in the relevant information manually, including product details, prices, and terms. While this method is old school and not very practical these days, it is straightforward and doesn’t require digital tools.

  • Excel Format: For a DIY approach, using Microsoft Excel to make a proforma bill is the most popular. Download a free Proforma Invoice Excel format and edit essential details such as item description, quantity, price, and total. You can include your company logo and other branding elements.

    Excel provides flexibility for customization, and once the template is created, you can reuse it by simply updating the relevant information for each new proforma invoice.

We have added some editable format below.

Free Download Proforma Invoice Template [Excel, Word, PDF Format]

Download and edit any of the following templates to create a proforma invoice.

Proforma VS. Quotation/ Estimate VS. Invoice

Here’s a comparison table highlighting the differences between Proforma Invoice, Quotation/Estimate, and Invoice:

Feature Proforma Invoice Quotation/Estimate Invoice
Purpose Provides details of goods or services yet to be delivered; acts as a commitment between buyer and seller Offers estimated sale price of goods or services; helps buyer in decision-making Demands payment for goods or services delivered (to be delivered); serves as a legal proof of sale
When Issued Before the sale, to inform buyer about the details of upcoming goods or services Before the sale, to provide an estimated cost to the buyer for decision-making After the sale, when the sale has been finalized
Negotiability Negotiable Negotiable Non-negotiable
Legally Binding Not legally binding Not legally binding Legally binding
Recording in Books Not recorded as accounts payable/receivable Not recorded as accounts payable/receivable Recorded in accounts payable/receivable
Format Like a commercial invoice but clearly labeled “pro forma” Like a pro forma invoice but labeled as a “quotation” or “estimate” Standard invoice format; includes invoice number, payment terms, etc.
GST/ VAT Treatment Not treated as a tax invoice Not treated as a tax invoice Treated as a tax invoice; includes applicable taxes like GST/VAT
Common Industries Used in various industries, especially for customs purposes in international trade Widely used in sales and service industries; aids in decision-making Common in all industries for finalizing transactions and seeking payment

In Conclusion: Proforma invoices are crucial pre-sales documents that allow potential buyers to get a clear picture of what their deal would look like. Although non-binding in nature, it is vital to international trade and bulk purchase deals.

FAQs About Proforma Invoice

Who uses proforma invoice?

Proforma invoices find common use in international trade, with exporters providing them to buyers before shipping goods. Beyond this, they are employed across various industries, including manufacturing, import/export, trading, and by wholesalers and dealers. The issuance of proforma invoices is particularly prevalent in businesses requiring customs clearance, ensuring a smooth process for the delivery of goods.

What is the difference between Performa invoice and proforma invoice?

“Performa” is a misspelling; the correct term is “Proforma.” There is no substantial difference; both terms refer to the same type of preliminary invoice. These terms are often used interchangeably, describing a provisional invoice that precedes the final sales document.

Is GST applicable on proforma invoice?

GST (Goods and Services Tax) is not applicable to proforma invoices. These invoices are considered preliminary and do not serve as official tax invoices. However, GST could be mentioned in the proforma to give the right estimate about the amount payable.

Is proforma invoice official?

A proforma invoice is not an official accounting document. While it serves as a preliminary agreement between buyer and seller, it lacks legal validity and is not recorded in accounts payable processes. It acts as a tool for negotiation and information-sharing rather than an official record of a financial transaction.

Why proforma invoice is required?

Proforma invoices provide an estimated sale price for goods or services yet to be delivered, offering transparency by outlining agreed-upon terms such as the date of delivery, price, and quantity. They act as a commitment between the buyer and seller, fostering trust. Proforma invoices are also crucial for customs purposes in international trade and prove beneficial when two companies engage in business for the first time.

Rajan Rauniyar
Rajan Rauniyar
Rajan Rauniyar is the Head of Content and SME for Marketing at HostBooks. Currently pursuing Chartered Accountancy, Rajan brings 7+ years of experience with 3+ years of hands-on experience in financial accounting, auditing, and taxation along and 4+ years of experience in content writing. Rajan's content is characterized by in-depth knowledge of finance and accounting, making it particularly valuable for accountants, business owners, lawyers, CAs, CXOs, and other decision-makers. His expertise in the B2B and SaaS industries ensures that every topic is addressed with a comprehensive understanding and is complemented with a practical solution. Drawing on his firsthand experience in financial auditing and combining it with his expertise in content writing, Rajan crafts compelling content that is not only informative and accurate but engaging to read as well. Education: CA Final – ICAI [Pursuing] CA Inter - ICAI [2016] Experience: Default – Senior Content Writer |US Based product Engineering Startup Techjockey - Content Writer | India’s First SaaS Integrator Fishtail Infosolutions - Content Writer | Digital Marketing Agency AVKG & Associates – Article Assistant | CA Firm USP & Company– Article Assistant | CA Firm

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