.png)
invoice
Understanding Proforma Invoices: Definition, Significance, & Format
A proforma invoice is better understood as an estimated invoice or a preliminary bill, which you can use for requesting payment from any committed buyer for the services or goods before they are supplied. You can consider it as a good faith agreement that will be created between the customer and seller.
With this, the buyer will have a clear idea of what payments they can expect to make before time. Most businesses need proforma invoices to promote seamless international transactions. These invoices are used for customs purposes, especially when shipping goods internationally.
There’s a lot more that goes into performance invoices to ensure it helps you in attaining seamless business transactions. Let’s dive deeper into this article to know about it better.
Before you get along with using Proforma invoice in TallyPrime, here’s a brief understanding of what it actually is. A Proforma invoice is more like a quote, which is in the invoice format, meant to outline the services or goods that are yet to be delivered. This invoice is issued to the committed buyer to ensure both parties are in mutual agreement.
Here are some of the purposes of issuing proforma invoices in business transactions:
Different business attributes might require customised invoices to request payments from buyers or service clients. Therefore, one of the common types of invoice businesses prefer is a proforma invoice! Proforma invoices are like the finalised quotations for buyers to get an idea of the total amount they have to pay without any last-moment surprises or disputes. The customers will have a better idea of the taxes or additional charges that they have to pay for availing of your services or products. The final invoice will have the same information as the proforma quote.
The proforma invoices for advance payment or as quotations are not legally bound and can’t be used as official sales reports in your accounts. In general, traditional invoices are meant to confirm a sale or purchase, but proforma just establishes the terms of the sale. But, this good faith agreement can still be used for some legal implications. The only condition is both parties should agree to the terms set upon the use of proforma invoice legally. It can be used as an important document for establishing a contract between seller and buyer.
The businesses have the clearance to use proforma invoices for international trade or customs purposes. While you are sending out some goods to foreign countries, you will have to produce a detailed summary of everything that’s inside the package. Most of the customs agencies will ask you the number of items in the package, their type and value. At the same time, others might also ask for weight, shipping costs, packaging costs and others too. Therefore, using the proforma invoice alongside your shipments will make international imports and trades even more hassle-free than ever. Moreover, it will also help you speed up your all-round approval process and ensure your customers get the goods on time.
Here’s a detailed understanding of the fields in a proforma invoice format:
The header will have information about the sender and the buyer/client. There will be the name, company’s name, address and phone number of both senders as well as the client/customer. Following that, you should give the invoice number alongside the date on which it is being issued.
Mention the list of all goods that the buyer has committed to purchase from you. Now list the name of the item, its description and the cost in a tabular format. Make sure to mention the quantity of each item that the customer has placed an order for. Mention both units, as well as the total price for each item.
Specify the total amount of all the products listed in the invoice, alongside the applicable taxes and discounts. Mention the final total after calculating the taxes, shipping costs and discounts. Following that, you can also mention any deposits, payments, amount due or other information as applicable. Specify the payment terms as well!
You will have to mention the shipping method you have preferred for the orders. Following that, specify the address to which the order is being shipped, along with the estimated delivery date. It is to educate your buyers on when they can expect the order to arrive and what is the cumulative shipping charge they have to pay.
You must specify the terms and conditions associated with the business order, such as the official language, how to make payments, how delayed payments are dealt with, and others.
The proforma invoices are valid only for a specific period of time. The standard expiry for a proforma invoice is until the time the actual tax invoice gets issued. There is no legal validity to it, as it’s not an original invoice. But, when it is used as an agreement under certain legal circumstances, then the validity period of proforma invoice is an important factor.
The difference between proforma invoice & invoice, in general, are as follows:
Both hold equal importance, and you might come across the need to use both of them. So, keep up with the E-invoice update for businesses!
Some of the best practices for you to create proforma invoices are:
This article gives you a clear insight into how proforma invoices are used and made across businesses for executing businesses beyond national borders. If you are a new business and are willing to go beyond national boundaries to offer your services, understanding the proforma invoice definition, significance and format of proforma invoice is of utmost importance. Understanding the rule of proforma invoice and using it correctly help you break the barriers of global commerce and scale your business exponentially. Not just that, but you will be able to secure a healthy and reliable relationship with your buyers.
