Invoice can be defined as a document which gives accurate description of material being sent or shipped and their prices, issued by the exporter/supplier at the request of the importer/purchaser prior to the placement of the order. It is not exactly same as proforma invoice, which is for form only, i.e. neither it is recorded in the books nor charged to the recipient’s account. It is used to request buyer for payment of the goods dispatched to him on credit.
While an invoice states the total amount due, for the convenience of the purchaser, proforma invoice is used as quotation or a demand for payment, when the company is dealing with new party, or with the party, whom the firm does not have any credit arrangement. Have a glance at this article to know the significant differences between proforma invoice and invoice.
Content: Proforma Invoice Vs Invoice
|Basis for Comparison||Proforma Invoice||Invoice|
|Meaning||Proforma invoice is similar to a normal invoice, provides information to the agent/buyer regarding the particulars of the goods yet to be delivered.||A commercial instrument delivered to the buyer containing the details of products or services provided by the seller is known as an invoice.|
|Time of issue||Before to the placement of order.||Before payment is made.|
|Acceptance||Creation of sale||Confirmation of sale|
|Objective||To help the buyer in taking decisions, regarding whether to place an order or not.||To inform the buyer, the actual amount due for payment.|
|Posting in account book||No entry is made, as the invoice is not a true invoice.||An entry is made in the books of accounts.|
Definition of Proforma Invoice
A proforma invoice is a commercial pre-shipment document prepared by the seller and delivered to the buyer/agent, to convey information of the goods to be delivered. The instrument contains a description of goods, i.e. quantity, price, weight, kind and other specifications. It is a declaration by the seller to provide the products and services to the buyer on the specified date and price.
As the document does not constitute actual sales, so no entry is made on the issue of the proforma invoice in the books of the seller for accounts receivable and the receipt of the buyer for accounts payable.
Definition of Invoice
Invoice refers to a non-negotiable instrument raised by the seller and delivered to the buyer containing the details of products or services provided to him. The document is used to request payment from the buyer of goods. It shows the indebtedness of the buyer towards the seller. The word invoice is indicated at the top of the face of the document. It contains the following particulars:
- Unique number
- Date of issue of invoice
- Date on which the goods are delivered
- Details of the product, i.e. products, quantity and agreed prices.
- Discount, if any, provided by the seller.
- Contact details of seller and buyer
- Payment terms, i.e. date and mode.
- Terms of credit
- Total amount due for payment.
Key Differences Between Proforma Invoice and Invoice
The differences between proforma invoice and invoice can be drawn clearly on the following grounds:
- A document similar to the normal invoice, which provides information to the agent regarding the particulars of the goods to be delivered, is known as proforma invoice. On the other hand, invoice refers to a commercial instrument delivered to the buyer containing the details of products or services provided by the seller.
- Proforma invoice is a kind of quotation, containing a commitment by the seller to supply goods at the specified rate and date. Conversely, Invoice is a sort of bill, displaying the amount due to the buyer.
- Proforma invoice is used for the creation of sales, whereas invoice is used for confirmation of sale.
- Proforma invoice is provided by the seller, on the request of the buyer before the placement of the order. As opposed to invoice, which is issued by the seller to the buyer to request payment of goods delivered.
- As proforma invoice is a dummy invoice and used for the purpose of creating sales, therefore no entry is made in the books of accounts for the financial transaction. Unlike invoice, which is a true invoice and as it results in a financial transaction, hence so it serves as a basis for accounting entry to be made in the books of both the parties.
- The basic objective of pro forma invoice is to help the buyer in taking decisions, regarding whether to place an order or not. Unlike, an invoice is raised by a seller to request payment from the buyer.
Due to the similarity in the particulars of both the documents people easily get confused between them. But the fact is they are different in a sense that an invoice demands payment from the buyer for the goods being delivered to him, whereas a proforma invoice is sent to the buyer on his request, before the shipment of goods.
Whitney Debitoor says
Thanks for a clear and thorough article on a subtle difference that can be important for businesses.
Anishur Rahman says
Thanks for such a excellent way of presentation.
Ehsan Safari says
Thank you so much for providing a clear and thorough article like this.
Thanks for good article that many business people should understand and in my view in the ‘perception’ that Proforma invoice creates! Niroo
Thanks , Really Helpful …
Thank you for the very useful info. However, all explanations are with regard to purchase and sale of a product.
My client, a construction contractor, has to pay my company, a consultant, an agreed success fee for a contractual claim that I successfully made and won for him.
He has asked me now to provide him with a ‘proforma invoice’ for the agreed commission. Under normal circumstances, I would raise an invoice for the commission and a tax invoice as per prevailing tax laws.
How should I prepare this proforma invoice?
Would really appreciate your advice.
Very clearly explained….very vague idea carried during this tenure and to this day…thanks for taking the pain for making all our readers for presenting a clear and detailed version, keeping us no room to go for further explanation…best of the best.
Excellent. You have covered the difference between proforma invoice vs Invoice throughly. It can be also called a “quotation” for the proforma invoice and bill for an invoice. Invoice has points in the accounts of books whereas quotation has no such point. Quotation encourages to make the deal.
simranjit singh says
good work this is very easy to understand
joseph jimas says
well try for the explanation u make it easy to understand.