Making Proforma invoice is a safer way of invoicing in businesses. It saves you from multiple obstacles during the completion of the order for the customers/ buyers. If you are doing business in goods & services, Here you will get to know all about the Proforma invoice. Keep reading to know what is a proforma invoice, Purpose, use, Format & how to create a proforma invoice in vyapar?
# What is a Proforma Invoice?
A pro forma invoice is a preliminary bill of sale sent to buyers in advance that provides a list of particular goods/services ordered by the customer yet to be delivered, along with their agreed prices. This bill will typically describe the available goods/ services and other important information, such as unique invoice number, proposed terms of sale and payments, applicable taxes etc.
Proforma invoice needs to be issued by a supplier/retailer to a buyer/customer. It is also not a part of books of accounts for the financial transactions. Few Billing software allows you to convert the Proforma invoice into a final sale invoice/ tax invoice in just a click and helps to save your time and energy. Vyapar App is one of them.
# Purpose of Issuing a Proforma Invoice?
Purpose behind issuing a Proforma invoice is to give the supplier’s commitment to the buyer to provide the goods on described prices and an understanding of contents to be shipped to the customer. There are no guidelines on Proforma Invoice but this is issued as part of best practices in business. It is the most useful document to inform the customer/ buyer about all the payment terms and product details.
As it’s not a finalised sale invoice you don’t need to revise it if there are any changes, and saves you from needless administrative work. It is also useful for suppliers to get payment confirmation on behalf of proforma invoice before delivery of goods. On other hand it also helps buyers/customers to get a chance of making modifications in shipment right before final sale invoice.
# When is the Proforma Invoice Used?
Proforma invoice needs to be issued by a supplier/retailer to a buyer/customer, usually issued before the sale actually happens. Pro forma invoices are more often used for a smooth delivery process. There are few common use cases where proforma invoices are beneficial for you to use-
- When items may be damaged in transit-
If goods are damaged when received, you have to raise a credit note against the original invoice. With a proforma invoice, you can make necessary changes and then turn your proforma invoice into a final sales invoice.
- When customers may change their order –
If the customer makes up their mind and changes the order after a delivery, your initial invoice would need to be re-raised or credited. A proforma invoice can simply be amended and converted to a final sale invoice.
The use of proforma invoice also differs from business to business.
Example: Buyer may demand a discount if they find the price is too high, Buyer may change the quantity of goods, for construction business it can be used when project scope may increase etc. Proforma invoice is keeping the invoicing process straightforward, simple & fast and helps to cut down the admin work.
# How to Issue a Proforma Invoice in Vyapar?
To issue a proforma invoice in Vyapar, you’ll need to include certain fields and information along with the header “Proforma Invoice”, so your customer can quickly understand the nature of the document.
A proforma invoice will generally include: Your company name, logo and address, A list of the products/services sold, Quantities and Prices for each item/product on the list, Applicable tax rates and the tax amount, The total amount that should be paid by the buyer, Your payment details and terms. Importantly, a proforma invoice doesn’t have any invoice number, you need to use a reference number for it.
1.) Click on the “Settings” in left menu > Click on “General” > Enable the option “Estimate/Quotation (Proforma Invoice)”
2.) Go back Click on “Invoice Print” Settings > “Change transaction names” > Click on estimate and type proforma Invoice > Click on “Save” button > Go back to home screen
3.) Open the transactions menu by clicking on “+” button > Click on “Proforma Invoice”
4.) Enter the unique proforma invoice number > Enter the customer/ buyer name
5.) Click on “Add Items” button > Enter the items/products with all the details > Click on “Save” button
6.) Enter remaining details such as place of supply/ description > Click on “Save” button > Take a print out or Share the Proforma invoice on email WhatsApp etc.
7.) You can also track the pending Proforma invoices and convert them into actual sale invoices by following this-
Left menu > “Sale” > “Estimate/ Quotation” > “Convert to sale”
To add or alter the terms and conditions for Proforma Invoice Please follow the below steps- Settings > Invoice print > Terms & conditions > Enable and Alter the terms & conditions under Estimate/ Quotation field
# Format of Proforma Invoice
There are no guidelines dictating the exact presentation or format of a pro forma invoice. It may look exactly the same as a Sale invoice. It should be clearly mentioned in the header as “Proforma Invoice” which indicates that it is not a final & actual sale invoice. The Proforma Invoice Format generally include:
- Your company name, logo and address
- Reference number of the Proforma invoice
- Date of issue
- Buyers name
- Correct billing and shipping address (along with the place of supply)
- A list of the products/services sold
- Quantities and price of each item/product in the order
- Any applicable tax rates and the tax amount
- The total amount that should be paid by the buyer
- Your payment details
- Clear terms and conditions regarding the order, payment and delivery
# Proforma Invoice v/s Invoice
|Description||It is a preliminary bill of sale or document made just before the final invoice that provides the information of goods and services sold and yet to be delivered to the buyer/ customer.||Invoice refers to a final bill issued by the supplier containing the details of goods or services delivered to the customer and the buyer is liable to pay the amount.|
|Negotiability||It is a negotiable document.||Invoice is non- negotiable. If any changes required, the buyer needs to re-raised or credit the invoice.|
|Objective||Helps the buyer in making the final decision about buying the goods, regarding whether to go with the order or change it. (Buyers can also make the advance payment of goods /services on the basis of Proforma invoice if they want)||Notify the buyer that he is liable to pay the amount against goods or services he purchased.|
|Reason of issue||Issue by supplier before goods/services delivered to buyer/ customer.||Before payment is received by supplier or after goods/services delivered to the customer.|
|Conclusion:||It is a Creation of sale. One step forward towards an actual sale.||It is a confirmation of the sale.|
# Proforma Invoice v/s Estimate
|#||Proforma Invoice||Estimate/ Quotation|
|Description||It is a preliminary bill of sale or document made just before the final invoice that provides the information of goods and services sold and yet to be delivered to the buyer/ customer.||Estimate refers to a Formal Estimation issued by a supplier containing the list of goods or services, along with their prices.|
|Negotiability||It is a negotiable document.||Estimate/ Quotation is also negotiable. It is just a proposal, the buyer is not bound to take any decision on it.|
|Objective||Helps the buyer in making the final decision about buying the goods, regarding whether to go with the order or change it. (Buyers can also make the advance payment of goods /services on the basis of Proforma invoice if they want)||It provides an estimated sale price of goods/services to the buyer. Helps the buyer in making the decision whether to buy or not.|
|Reason of issue||Issue by supplier before goods/services delivered to buyer/ customer.||On buyer’s request before placing order for goods or services.|
|Conclusion:||It is a Creation of sale. (One step forward towards an actual sale.)||It is also a Creation of sale (First step toward an actual sale)|
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