This article highlights differences between a standard invoice and a proforma invoice.
As a business owner, accepting payments is the very bane of your business. To offer products or services, getting paid is essential to keeping your business profitable. However, also requesting for payment and making sure it is straightforward for your client or customer is also equally important. One of the many ways to keep this process seamless is through an invoice.
What is a Proforma Invoice?
A proforma invoice entails a bill of sale sent to the customer before a product or service. The purpose of this invoice or quote is to ensure that both buyer and seller are aware and are in agreement of the financial and time commitment for a particular purchase or service.
This allows the seller to make a case on why priced items are the way they are, and this allows the customer to negotiate other terms that may be favourable. It’s suitable for running a mini importation business in Nigeria
Why you should use a Proforma Invoice
- It offers transparency to both parties on different commitments required for the completion of the transaction
- If you will deal with customs in a certain transaction, you send beforehand so that the process can be smooth sailing.
- If you’re dealing with a company, it is necessary as part of their internal approval process to have this documentation
- Hold both parties accountable before the initiation of the transaction.
Differences between a Proforma Invoice and an Invoice
- A proforma invoice is a proposal or quote sent before the completion of a sale
You send an invoice to the buyer requesting payment after the completion of a sale.
- The objective of a proforma invoice is to let the buyer know what to allocate and budget for a particular transaction.
The aim of an invoice is to let the buyer know the amount due for service rendered or products delivered.
- The proforma invoice will include all of the information on a standard invoice but will have “proforma” written on it.
The invoice typically includes the logo, contact, billing address and the terms and conditions.
- A proforma invoice gives your business of what money customers owe and when it is due. It is therefore not applicable for accounting.
An invoice, however, is applicable to accounting purposes as it appears in the account payable or account receivable.
Should payment be requested using a Proforma Invoice
Using a Proforma Invoice to request for payment may cause confusion in the accounts payable sector of the buyer. Its use should as a guide or quotation for products or services. To avoid confusion, you should send a standard invoice once you complete the transaction.
Though both types of invoices may have some similarities in the way you draft them, the uses are entirely different. A major takeaway is that you can use proforma invoices as a quotation to get the consumer or client in agreement with you terms, while a standard invoice is used to request for payment after the transaction is complete.