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Accounting

What is Pro Forma Invoice?

A pro forma invoice is a preliminary bill that tells a customer what they will be charged before the goods or services are supplied. It is not a VAT invoice, not a demand for payment and not a record for your books.

Example

You agree to sell machinery to a customer abroad. You send a pro forma invoice for the full price so they can arrange payment and customs paperwork. Once they pay and you ship, you issue the real VAT invoice.

Key Dates

Issue before the sale is completed. Issue the real invoice at the time of supply

How Pro Forma Invoice Works in Practice

A pro forma invoice, sometimes written proforma invoice, is a document that looks like an invoice but is sent before the sale is final. It sets out what you are selling, the price, the delivery terms and your bank details, so the customer knows exactly what they are agreeing to. Think of it as a firm quote laid out in invoice format.

The key point is that a pro forma invoice is not a tax invoice. It does not create a sale for accounting purposes and it does not start the VAT clock. You do not record it as income, you do not include it in your VAT return and the customer cannot use it to reclaim input VAT. Only the final VAT invoice, issued when you make the supply, does those jobs.

A pro forma invoice differs from a quote because it is usually laid out so the customer can pay against it, and in some cases it is needed for customs or for a bank to release a payment. It differs from an invoice because it is not a request for payment of a debt that already exists. It should be clearly marked as pro forma so nobody mistakes it for the real thing.

Typical uses are taking a deposit or full payment up front, supplying goods to customers abroad where customs wants a value declaration, sending samples, and dealing with new customers you do not yet trust. Be aware that if you take a payment in advance, VAT rules on the time of supply may require you to issue a proper VAT invoice for the amount received.

Step by Step

When a customer asks for a price in invoice form, you send the pro forma with a clear PRO FORMA heading, a reference number that is separate from your invoice sequence, the items, prices, any shipping and the payment terms. The customer reviews it and, if they agree, pays or confirms the order.

Nothing is posted to your accounts at this stage. When you supply the goods or services, or receive a payment in advance that triggers a tax point, you issue the actual VAT invoice with its own sequential number. The pro forma is then superseded, and it helps to reference it on the final invoice so the paper trail is clear.

For international shipments, customs authorities often ask for a pro forma or commercial invoice stating the value and nature of the goods. Check what the destination country requires, as the exact document name varies.

Practical Tips

  • Put PRO FORMA in large text at the top so it cannot be mistaken for a VAT invoice
  • Use a separate reference sequence such as PF-001 so your invoice numbers stay unbroken
  • State how long the prices are valid and what the delivery terms are
  • Reference the pro forma number on the final invoice so the two documents can be matched

Common Mistakes to Avoid

  • Using the normal invoice number sequence for pro formas, which creates gaps in your VAT invoice numbering
  • Recording a pro forma invoice as sales in the books, which overstates income and output VAT
  • Forgetting to issue a proper VAT invoice once payment is received or the goods are supplied
  • Leaving the pro forma unmarked, so the customer treats it as a final invoice and claims VAT on it

Frequently Asked Questions

Is a pro forma invoice a legal document?

It is a commercial document, not a tax document. It can set out the terms you offered, but it is not a VAT invoice and carries no VAT claim rights for the customer.

Do I put a pro forma invoice on my VAT return?

No. Only VAT invoices for actual supplies, and payments in advance that create a tax point, go on the return. The pro forma itself is ignored for VAT.

What is the difference between a pro forma invoice and a quote?

A quote is an offer that may or may not be accepted. A pro forma invoice is laid out like an invoice so the customer can pay against it or use it for customs. Both are estimates of a future sale rather than a record of one.

Do I need a pro forma invoice to export goods?

Often the destination customs office asks for a commercial or pro forma invoice showing value and description. Requirements vary by country, so check before you ship.

Source: https://www.gov.uk/invoicing-and-taking-payment-from-customers

Related Terms

Invoice

An invoice is a document requesting payment for goods or services. VAT invoices must contain specific information for VAT-registered businesses.

Credit Note

A credit note is issued to reduce or cancel an invoice - used for returns, overcharges, or cancellations.

VAT (Value Added Tax)

VAT is a tax added to most goods and services sold in the UK. Businesses collect it from customers and pay it to HMRC, minus any VAT they've paid on business purchases.

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