Pro forma invoice

What is a pro forma invoice?

A pro forma (or proforma) invoice is the provisional, unofficial version of an invoice that will follow for a future supply of goods, services or a combination of both. Just like an official invoice, the pro forma states essential information about the products and/or services to the customer, rates, VAT, identification of supplier and customer, etc.

When do you use a pro forma invoice?

Why a sham invoice in advance and not immediately a valid invoice upon the later service and delivery? Simple: because it confirms to the customer what will follow based on a sales agreement, such as an order confirmation, but above all because customers can use the pro forma to complete their own formalities. Think of financing requested from the bank, or of import or export, where licences must be applied for and customs formalities apply. In the latter case, the pro forma substantiates the commercial value of the goods, often the basis for levies. Some governments specifically require pro forma invoices for the transport of goods, see for example Access2Markets.

In practice, the pro forma is quite often used (misused) to receive an advance payment, although that is not the appropriate way, because the advance invoice is meant for that. With a pro forma, the customer cannot, for example, reclaim the VAT paid on an advance payment or offset the cost in the accounts. Moreover, the VAT administration may take issue with an advance payment without VAT being applied, because a pro forma is not valid in this respect.

Take VAT into account

In principle, the pro forma invoice closely matches the final invoice. However, it turns out that quite a few entrepreneurs do not follow that principle and, for example, do not state VAT. They do so because at the time of the pro forma the VAT is not yet payable and/or recoverable. That reason does not hold at all, because even if VAT is stated, which is correct information about what will follow, the pro forma still does not form a basis for the assessment, as it is a document that is not included and processed in the administration.

How does a pro forma invoice differ from a regular invoice?

Mainly in the mandatory statement pro forma. A pro forma invoice is not legally valid and does not form a basis for a claim against the customer or for the VAT administration. It therefore does not carry a legally valid invoice sequence number. The buyer is not obliged to make a payment on the basis of that document. That would be difficult anyway, because in principle the document is not included in the accounting processing. Ideally, the pro forma is a preview of the final invoice, so that only the actual delivery date and any warranty dates (period) are missing from the pro forma.