However, sellers typically refer to documents requesting payment as invoices, and buyers are more likely to refer to these records as bills. Pre-sale and potentially pre-manufacturingĬolloquially, “ bill ” and “invoice” are used interchangeably with little distinction.
To request payment for a past or present delivery Further, they should be considered a legally-binding request-assuming they are legitimate. These documents are used during your accounts receivable (A/R) efforts and should match updates to your general ledger, balance sheet, and other accounting reports and paperwork. Rather than being strictly informative about a potential future transaction, a standard invoice - sometimes called a sales invoice - acts as a formal request for payment, outlining the associated costs of a good or service that is either being delivered or has been delivered in the past. other types of invoices What is the difference between an invoice and a pro forma invoice? Further, without official documentation, you’ll fall victim to invoice fraud. It’s always more difficult to have funds returned to your business after overpaying than just to pay the appropriate total in the first place. Even when advanced payment is required before service or product delivery, you should still request an official sales invoice.Īdmittedly, for high-trust transactions, you can more than likely get away with paying for these orders using just a pro forma invoice, but in doing so, you leave yourself open to more risk. Since these documents don’t reflect a formal, legally binding request for payment that is being tracked by general accounting principles, it makes more sense to wait for official documentation that places responsibilities on both parties. At best, you could consider it a “good faith” agreement that lacks legal standing and is wholly unenforceable. Given the unofficial capacity of these records, pro forma invoices should never be used for accounting purposes nor considered a binding document. Clear labels that identify the document as a “Pro Forma Invoice” or “Not an Invoice”Īre pro forma invoices a legally binding agreement?.Buyer’s details (e.g., company name, address).While there are no official requirements for this document, the average pro forma invoice will at least include: What is included in a pro forma invoice?Ī pro forma invoice will frequently appear similar to the final invoice that a business might send, sharing many - if not all - of the same fields. And if they aren’t happy with the conditions, they can renegotiate before any work starts. Each party on either side of the transaction knows what to expect from the sale.
It describes the overall order and outlines projected pricing and payment terms with the expected delivery terms and costs clearly outlined. So rather than a payment request - like a traditional invoice - a pro forma invoice serves roughly the same function as a purchase order confirmation. It’s essentially a rough draft of documents to come. Pro-forma invoices should always be clearly described as such and should preferably be endorsed “This is not a VAT invoice”.Pro forma is a Latin phrase that translates to “as a matter of form” or “for the sake of the form.” When this descriptor is applied to documents, it typically indicates that the corresponding paperwork is unofficial but was prepared in the same manner or style as official paperwork. If payment is made, the goods or services will be supplied and a VAT invoice should be issued for accounting purposes.Ī pro-forma invoice, in normal circumstances, cannot be considered to be an accounting document and has no place in the books of account of the trader either issuing or receiving it. Unless payment is received, the goods or services will not be supplied.
They are frequently used to offer goods or services to customers who are:
Pro-forma invoices are used in a variety of commercial situations. Pro-forma invoices may be broadly defined as commercial documents that contain some or all of the information normally contained on an invoice, but which do not fulfil that primary function. The primary function of an invoice is to provide formal confirmation of a specified supply of goods or services.