Some companies also request proforma invoices for their internal purchasing approval process. Since they often include details about shipping, packaging, weight and delivery fees, proforma invoices are also often used in the international shipping industry, helping to declare the value of an item so that it can pass through customs. Your customer is transparent on what they are purchasing, and you can then supply the goods or services as agreed. Proforma invoices can also streamline the sales process as everything is confirmed upfront. It provides a breakdown of the goods or services in question along with an accurate indication of the total amount due - but you are not requesting payment, so these details can be adjusted at a later date if necessary. So, if it's not legally binding, what is the purpose of a proforma invoice, and why would you use one? A proforma invoice serves as a good faith agreement between you and your customer. However, if they decide not to proceed, no action is required, and the proforma invoice does not need to be edited or cancelled. Once the customer confirms they'd like to go ahead, you can issue a final invoice. In essence, a proforma invoice is used to show how much goods or services will cost to help the customer decide if they want to go ahead with the purchase. Once the goods or services are delivered, you can send a standard sales invoice for these purposes. In addition, the total amount due isn't recorded under the customer's accounts payable or your accounts receivable, and you can't use a proforma to reclaim VAT. Whereas with a standard invoice, the customer must pay the stated amount, this isn't the case with a proforma. In fact, in many ways, a proforma invoice is more like a quote or estimate than an invoice. However, it does not carry the same legal weight and should not be used for accounting purposes or binding agreements. It is usually sent when a customer has committed to a purchase but before the final details, such as quantity or price, have been confirmed.Ī proforma invoice will include many of the exact details as a standard invoice, such as a description of the goods or services involved, the total payable amount and other information about the transaction. What is a Proforma Invoice?Ī proforma invoice is essentially a provisional bill of sale. If goods are damaged, or there's been a mistake with an order, you may also issue a credit note or credit invoice to cancel out an already issued invoice, in part or in full. If you're shipping goods internationally, you may issue commercial invoices, which are used to calculate the traded goods' financial value and any applicable taxes that may apply to the shipment. As well as a payment request, it's also a tax document and, if it includes VAT, it may be called a tax invoice. This is a formal request for payment that's sent at the same time as, or shortly after, goods or services are supplied. The most commonly recognised is the sales invoice. But did you know that there are actually different types of invoices, each of which has its own role to play in helping you manage your company's finances? Types of invoicesĪs mentioned, there are several different invoice types. Timely and accurate invoicing is an essential part of running any small business.
0 Comments
Leave a Reply. |