Proforma invoice: what it is, what it is used for and when it is used

[jrineakter]

Within the vast world of invoicing, proforma invoices are very particular due to their legal and commercial validity. But if they are not a real invoice or a quote, then what are they for?



A proforma invoice is a document detailing the goods or services a supplier agrees to supply to a buyer before a transaction has been completed. It is often used in international trade as a way to provide the buyer with a price and terms quote before the goods are shipped or services are performed.

What is a proforma invoice?
As we already mentioned , a proforma invoice is an informative document that contains all the information that will later be included in the final invoice.



This informational character is used malaysia number data to declare the seller's commitment to provide the specified product or service to the buyer and at the specified price.

What is it for?
The proforma invoice includes information about the products or services , such as their description, quantity, unit and total price, as well as any taxes, shipping fees or other associated charges.



This is not valid for accounting purposes and a business cannot use it as proof of payment. However, it can be used to demand that the terms of the contract be respected.

When is it used?
Some companies may require a proforma invoice as part of the credit application process or as part of an import or export license application .



These are used by companies in international transactions where the establishment of a trade agreement can lead to confusion. A clear example is when the value of goods must be declared when passing through customs.

Who issues it?
In this case, the proforma invoice will have to be issued by the exporting company. It will detail all the aspects that are important to complete the purchase and sale transaction.



If the importer decides to accept the offer, the proforma invoice can serve as proof of payment confirmation before it is made. You can also convert it to an invoice and issue it to the customer for later payment.

What is the difference between a regular invoice and a proforma invoice?
At first glance, they are easy to confuse, as they contain the same information and present it in practically the same way, but these have their differences.



The proforma is a provisional invoice. It is used to seal the sale of a product or service between two parties, but it will not form part of your accounting. Unlike the invoice, which is the final document, the proforma can be modified.



The IRS will never accept a proforma invoice as evidence of a business relationship between you and your client , so it is very important to be clear about the difference between the two.



In terms of appearance, the proforma invoice would be exactly the same as a regular invoice except for two details:



Qualification
The main difference between the two is the title. The proforma invoice must always clearly indicate what it is to the client. The word 'proforma' must appear in the header of the document and be clearly visible so that they can be differentiated.



Numeration
Proforma invoices can be numbered, but since they are not part of accounting, this is not a requirement. Regular invoices are always numbered.

What is the difference between a proforma invoice and a quote?
These documents can be confused, as they have similar characteristics:



None of them have tax validity (they cannot be used to collect or deliver to the Treasury).
They show the price of products or services.
They are usually sent before the final invoice.
But that's where the similarities end.



A quote is an advance estimate of the total price of a good or service. It is understood as an offer and its function is normally to initiate a negotiation. If your client rejects it, you will have to create a new one or end the relationship.



Depending on the negotiations, the total cost shown in the quote can vary greatly from the initial version to the final invoice.



The proforma invoice , on the other hand, tends to be a reflection of the final invoice and cannot contain any other amount or quantity other than the agreed price. Normally:




As we have already mentioned, the content of a proforma invoice is quite similar to that of a regular invoice .



The requirements for proforma invoices are:


The header must contain the title 'Proforma Invoice' in a very visible manner to avoid confusion with commercial invoices.
The date of issue.
Your details as a supplier or issuer: business name, company name, NIF , contact details, address, etc. In addition, if the transaction is carried out within the European Union, the community VAT number must be included.
Your client or recipient's details: business name, company name, identification, contact details, address, etc.
Description of the products, merchandise or services, explicitly mentioning the quantity or units if applicable.
Unit price per product, total price and quoted currency.
How to make a proforma invoice in English
There are different legal frameworks that make it necessary to send an invoice document in English. The most common ones are, fundamentally, shipments outside the European Union and the case in which the recipient of the proforma requires the document in this language.



Fortunately, a proforma invoice in English should include the same sections as in Spanish. You just have to take into account how the terms are translated and what the international taxes are.



In the header you should include the expression " Pro forma invoice " to avoid misunderstandings with your client.
You will need to include the name and VAT number or identification number of both parties, taking into account that this will probably change depending on the country to which you are billing.
When creating pro forma invoices in English, do not forget the “ Pro forma invoice date ”, which will be the date of the invoice and, as in Spanish, must correspond to its invoice number (or serial number, in case you choose to create a different series for your foreign transactions).