A proforma invoice is a document generated before issuing a commercial invoice. The seller-issued proforma invoice contains information about the goods or services yet to get delivered. A proforma invoice is less formal than an invoice and more formal than a quotation.
For example, if a prospective buyer comes to a seller of XYZ products and requests a rough estimation of the bulk product price, the seller responds with a quotation, which is typically an inexact goods value. If the buyer is inquisitive about the quote and requests a final appraisal, the seller will send a proforma invoice that includes other sale details, such as tax rate, discount, delivery charges, and others, in addition to the initial product price. Generating the proforma invoice is made easy with Swipe. You can look professional by selecting one of the best invoice templates from a vast collection.
A proforma invoice expresses the promise of a seller to deliver the desired goods or services to the potential customer. On the contrary, it notifies the vendor about the goods or services and the payment information. Proforma invoices are crucial when two businesses get into a business contract for the first time. They serve as an unofficial binding agreement between the parties, ensuring that both parties are conscious of the terms and prerequisites of doing business.
While a quotation only includes the most basic details of the sale, such as the product price, shipping, and others, the proforma invoice adds more information, making the deal more apparent to the buyer. It informs the customer of the estimated sale price of yet-to-be-delivered supplies - the shipment cost, the constituents of shipping, their price, delivery charges, and other specific details. If there is a discrepancy, the purchaser can allude, and the invoice will be amended before it gets generated.
Some businesses generate the official invoice only when they receive the payment from the customer. In such instances, the customer gets the proforma invoice first and later receives the official invoice once they make the payment.
A proforma invoice should be informative, with only information relevant to the customer. The following steps cover all the essentials to include in the proforma invoice when generating one.
1. On top of the invoice, mention that it is a proforma invoice.
2. Below the invoice name, the header should have the business logo with its name.
3. Number the invoice (not obligatory, but can give one)
4. Invoiced date (Ensure that you invoice the client the very day you generate the invoice)
5. Display details of the seller, including name, address, contact number, and email ID.
6. Also, show the details of the customer. It includes the name, shipping address, email ID, and contact number.
7. Describe the products or services in detail and give the quantity of each product or service with the price listing.
8. Highlight the due date and amount.
9. Give terms and conditions.
10. The seller or any other authorized person must sign the document at the end.
Since GST does not recognize it as a valid sale file, a proforma invoice is not a legally binding document. Therefore, neither the seller nor the buyer has to pay GST on proforma invoices. It is not essential to mention these invoices on any returns, and because the proforma invoice is not the actual one, neither the buyer nor the seller must enter them into their accounting books.
However, ever since the implementation of GST, there have been a few adjustments to the proforma invoice template. The proforma invoice now includes the GST number rather than the VAT/sales Tax numbers, compared with the previous variant. Also, the new variant retains the product's HSN or the service's SAC code.
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The accuracy of a proforma invoice differs from one company to another. However, it usually lasts between 30 and 90 days. Once the validity period is expired, the proforma invoice is void.
When a seller issues a proforma invoice, there is no need to make a payment. Only when an invoice is issued does the charge becomes an obligation.
Yes, a proforma invoice can be revised as many times as necessary until the buyer and seller reach an agreement.
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