What is a Proforma Invoice? | Meaning, Examples & Templates

What is a Proforma Invoice?

First of all, we should say that a proforma invoice is a document type of invoice. There are various types of proforma invoices, but we typically use them in international trade. The purpose of a proforma invoice is to provide buyers with an estimate of the cost of goods or services or to ask for an advance payment. You should also know that, there is no binding contract in a proforma invoice but rather an offer to sell goods or services at a specified price, and terms can be negotiated before a final agreement is reached. Among other relevant details, it contains information about the price and the delivery terms.

If you are interested in the proforma invoice format, download this template that Kernel has prepared for you.

Why do we need to use the Proforma invoice in India?

A proforma invoice must be prepared before the sale is completed. It provides advance information about the transaction between the buyer and seller. More specifically, when buyers want to place an order with a seller, but they need more information about the product or service before committing to the purchase.

For example, a seller will issue a proforma invoice if a customer requests them to provide a document for goods or services that have not yet been delivered. It is issued before the issue of the tax invoice.

The final amount of the invoice will be the same as the proforma invoice. A proforma invoice is used for customs purposes on imports and exports to make the delivery process smoother. In those cases where the customer agrees to the price of an item on the proforma invoice, the seller will deliver the item once it is ready, and the customer will pay when the invoice is received.

Contents of Proforma invoice

In India, the proforma invoice should contain the following information:

Unique invoice number and date

The seller's name, address, contact information and GSTIN

A description of the sold goods or services, including quantity, unit price, total price, the place of supply of the goods or services

Prospective buyer's name, address, contact information and GSTIN

The terms of sale, such as the payment terms, shipping terms, and guarantee

The valid period of the proforma invoice

Signature of the person from the supplier's company

Certifications required by "Customs Authorities" if any



What is the aim of a Proforma Invoice?

There are various purposes for issuing a Proforma Invoice and here are some of them:

1. It is used as a preliminary bill of sale.

2. To indicate the kind and quality of goods a buyer can expect.

3. To request advance payment from the buyer for the goods or services to be supplied.

4. To provide shipping information to the buyer in advance.

5. To estimate the costs of the goods or services to be supplied.

What Significant Changes are in Proforma Invoice Under GST Compared to Pre-GST Proforma Invoice in India?

1. The main difference is that a proforma invoice under GST includes GST, whereas a pre-GST proforma invoice did not.

2. Another difference is that a proforma invoice under GST is issued by the seller, whereas a pre-GST proforma invoice could be issued by either the buyer or the seller.

3. A proforma invoice under GST must contain the GSTIN of the seller, whereas a pre-GST proforma invoice does not need to contain this information.

4. Finally, a proforma invoice under GST can be used for advance payment, whereas a pre-GST proforma invoice cannot.



Differences Between Invoice, Proforma Invoice, Purchase Order and Estimates/Quotations

Kernel has prepared this table for you to provide you with detailed information on the fundamental differences and similarities between an invoice, proforma invoice, purchase order and quotations/estimates. It helps you better understand how and in what case to use each.

Special Details

Invoice

Proforma invoice

Quotation/ Estimates

Purchase order

Definition


Invoice is issued by suppliers to the buyers. It includes the details of goods or services supplied to buyers and informs them that payment is due.



A proforma invoice provides information regarding the goods or services yet to be delivered to the buyer.

A formal estimate describes the goods or services needed and the total amount owed to the products or services.

A purchase order is issued by the buyer and sent off to the supplier detailing the list of the goods or services to make a purchase.

Objective

To notify buyers that payment is due.

To help buyers in taking decisions, regarding whether to place an order or not.

To provide estimated sale price of goods yet to be delivered.

To order goods and services from the supplier.

Time of issue

Before payment is received by the supplier.

Before goods and services are delivered to the buyer.

On buyer’s request before goods and services are delivered to the buyer.

After the receipt of quotation/ proforma invoice from the supplier.

Entry into force

Sales confirmation

When a sale is made

When a sale is made

Contract of sale

Issued By

Supplier

Supplier

Supplier

Buyer

Issued to

Buyer

Buyer

Buyer

Supplier


What is the Difference Between Tax Invoices and Proforma Invoices?

Under GST, an invoice is a document that specifies the details of a transaction, such as a price, quantity, and terms of sale. A proforma invoice differs from a standard invoice in that it is issued in advance of a sale and does not include final pricing or terms of sale. It typically includes an estimate of the goods or services to be sold and is used to secure a contract or order.

The main difference between a proforma invoice and a regular invoice is that a proforma invoice is not a bill. It is simply an estimate of what the final bill will be. A proforma invoice is often used in international trade, and it may include shipping costs, insurance, and other charges.

A tax invoice is issued by a registered seller and is a document that is used to charge GST on the supplies made. A proforma invoice is issued by the supplier in advance of the supplies being made and is used to estimate the GST that will be charged.



What is the Difference Between proforma invoices and estimates/quotations?

Both proforma invoices and estimates/quotations are used to provide an estimate of the price of goods or services. The main difference between a proforma invoice and an estimate or quotation is that a proforma invoice is usually issued before the actual sale takes place. In contrast, an estimate or quotation is issued after the sale has been agreed upon.

What is the Difference Between Proforma Invoice and Purchase Order in India?

A proforma invoice is different from a purchase order in that a proforma invoice is not a binding document. On the other hand, a purchase order is a binding contract between a buyer and a seller. A proforma invoice is an estimate of what the final invoice will be, while a purchase order is an actual order for goods or services.

General Terms And Conditions That Can Be Included In Proforma Invoices?

Terms and conditions are the rules and regulations that are agreed upon by the buyer and seller and are included in the proforma invoice. These terms and conditions may vary depending on the product or service purchased. Some of the common terms and conditions that can be included in a proforma invoice are:

- Payment terms:

This includes the methods of payment acceptable to the seller, the time frame in which payment is to be made, and any discounts that may be offered for early payment.

- Delivery terms:

This includes the delivery method, the time frame in which the product or service will be delivered, and any charges associated with delivery.

- Returns and cancellations:

This includes the seller's policy on returns and cancellations and any charges associated with returns or cancellations.

- Warranties and guarantees:

This includes any warranties or guarantees offered by the seller and the time frame in which these warranties or guarantees are valid.



Frequently Asked Questions

- What is a proforma invoice?

A proforma invoice is a document that a seller issues to a buyer in advance of a sale. It is used to give the buyer an estimated cost of the goods or services purchased.

- What information should be included in a proforma invoice?

In India, a proforma invoice should include:

  • the name, address, and GSTIN of the seller,
  • a description of the sold goods or services,
  • the HS Code of the goods being sold,
  • the number of goods being sold,
  • the unit price of the goods being sold,
  • the total price of the goods being sold,
  • the place of supply of the goods or services,
  • the terms of delivery of the goods or services,
  • the terms of payment,
  • the name, address, and GSTIN of the buyer,
  • the valid period of the proforma invoice.


- What is the difference between a proforma invoice and a tax invoice?

A tax invoice is issued by a seller to a buyer after a sale has been made. A proforma invoice is a document that a seller issues to a buyer in advance of a sale.

- What is the difference between a proforma invoice and an estimate?

An estimate is a document issued by a seller to a buyer that contains an estimated cost of the goods or services being purchased. A proforma invoice is a document issued by a seller to a buyer in advance of a sale. It provides the buyer with an estimated cost of the goods or services being purchased.