Proforma Invoice Meaning and Templates For Businesses in the Philippines

Simple definition: A proforma invoice, also known as an estimate or quote, is basically a preliminary bill that is sent to the customer for review before the delivery of goods or services. It’s kind of like a draft or estimate invoice. A proforma invoice isn’t a true invoice, and it doesn’t carry any legal significance.

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We’ll devote the rest of the article to exploring the meaning of proforma invoices, their usage, and what is actually included in proforma invoice templates.

If you want to read about sales invoices you can visit our comprehensive article here or if you’re more interested in the actual process of invoicing then here’s a complete guide to invoicing for you.

Going In-Depth: What are Proforma Invoices Used For and Who Uses Them?

On a global scale, the booming digital economy has resulted in the meteoric rise of e-commerce businesses. Adding the economic impact of the Covid-19 pandemic, the use of a proforma invoice has become common and so important for businesses today.

There are many reasons why businesses use proforma invoices. Like in the Philippines, many e-commerce businesses are using a proforma invoice as a shipping document that is sent to the buyers before the shipment of goods starts.

But here are some of the other purposes of a proforma invoice:

  • Provides buyers a cost estimate of their purchase and shipment.
  • Helps them pass through the customs easily when the goods are to be imported.
  • In addition, as it declares the value of goods, the payment process becomes swift.
  • Presents details that might don't appear in a sales invoice like the shipment details.
  • Serves as a binding agreement between the seller and buyer especially when the change in order arises.
  • Forms as a basis for bookkeeping and accounting reducing errors in the process as the terms are clearly outlined.
  • Proforma invoice is almost a requirement when a company is engaged in export or logistics businesses.
  • Opens a letter of credit for companies in import and export businesses.

Ultimately, based on the points above, proforma invoices help boost profits and with getting paid faster.

Still, it must be noted that the use of a proforma invoice lacks legal validity and therefore it is not legally binding. But still, proforma invoices are an important part of the business, especially e-commerce businesses.

Quick Question

Is There A Standard Format For Proforma Invoices?

No, there's no standard format or specifications when preparing proforma invoices. There are only generally accepted practices about what fields to include. We’ll be discussing these below.

Proforma Invoice Template: What to Include and Why

So, again, businesses use proforma invoices to manage the expectations of the buyers. In order to do this, it needs to provide all the necessary information about the purchase.

A proforma invoice does not usually include an invoice number but there is no regulation that says you can’t include it. Additionally, it should say proforma invoice instead of just invoice. Everything else is the same as in the case of sales invoices discussed in this article.

Here’re are the fields you need to include in your proforma invoices:

  • Company information: Registered name, TIN, and other contact information like address, email, etc. A logo is optional but highly recommended.
  • Client information: The client’s name and contact details like email, address, and phone. Not all of these contact fields are necessary, but you should include at least one.
  • Issuing and payment dates: Recording the date of service rendered or date of sale can help simplify cataloging. The date of sending the proforma invoice must be included to ensure payments are made on time.
  • Details of sold goods or services: Name, price, quantity, and tax (if applicable) of each sold item must be included in the proforma invoice. The total tax amount must also be included.
  • Total amount due: The total amount due for payment must be included in a proforma invoice.
  • Payment terms: Outline what method of payment is going to be used. In the case of a bank transfer invoice must also include your bank credentials like account number, bank name, and bank code.

What's the Difference Between Proforma Invoices, Sales Invoices, and Official Receipts?

It’s easy, here’s how they’re different. Imagine three steps of the purchase:

Step 1: During the first step, you inform the buyer about the price and additional details of the transaction. This is done with proforma invoices which are basically preliminary bills that provide information about the future transaction.

Step 2: The client agreed to the terms and is now ready to pay. This means you need to provide an official request for payment for sold products or services. For this, you need sales invoices that state the terms you already agreed on. You can learn more about sales invoices here.

Step 3: The money is now paid but you need some kind of proof of payment from the customer to make sure they actually went through with the transaction. This is where official receipts come in. Here’s an article devoted to official receipts.

So a proforma invoice is sent to establish the terms of the transaction. Then a sales invoice is sent before a payment is made, specifies the agreed terms, and requests payment. And lastly, an official receipt is issued after the payment as proof of the transaction.

The thing is that these three don’t always co-exist.

Proforma invoices and sales invoices are used for the sale of goods.

Official receipts are used for the sale of services

Businesses can choose to issue all three, Proforma invoices, sales invoices, and official receipts for every sale of goods and services, but only sales invoices and official receipts have legal standing. And BIR only requires one, either a sales invoice or an official receipt, depending on what you’re selling.

Here’s a comprehensive guide on what to include in official receipts and how to issue them:

How to Create BIR Official Receipts | Everything You need to Know

And here’s the article about everything you will ever need to know about sales invoices:

What is an Invoice? | Meaning, Purpose, Types, and Elements

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