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What is Proforma Invoice?

The concept of a pro forma invoice has been around for a while now. It has been used as the primary tool for ensuring the collection of dues from the buyer by the supplier. However, since the implementation of the Goods and Services Tax Act in 2017, things have changed a little bit in the pro forma invoice world. This article will take you through the concept of a pro forma invoice and how it has changed ever since GST was put into effect. 

Meaning of Pro Forma invoice 

A pro forma invoice is a document that consists of all the information concerning the goods and services which have to be delivered to either the customer or the buyer. It includes all of the particulars concerning the sale of goods and services like the price of the goods, the taxes applicable on them, their cost of shipping, commissions which are due, and the weight of the goods that need to be shipped among others. 

When is a Pro Forma Invoice Used?

As is implied from the paragraph above, a pro forma invoice is handed out even before the sale has even gone through. If delivery of certain goods has a pending status, the supplier will hand out a copy of the pro forma invoice if a certain customer asks for the same. For example, if a car is yet to be delivered to a customer at an agreed-upon price, that very same number would be mentioned on the proforma invoice. 

 

Once the car has been delivered to the customer, a final version of the commercial invoice mentioning the exact figure as the one printed on the pro forma invoice would be provided, post which the customer proceeds to make the payment. Majorly, proforma invoices come in handy when the cargo is waiting to be processed further on customs, implying that they are mainly used during the movement of imported and exported goods and products so that the parties involved can ensure a smooth delivery process.

Why is a Pro Forma Invoice Used in the GST Era?

It must be noted that there is no particular law that mandates the issue of a pro forma invoice in the prescribed format by any company or establishment. However, many companies tend to issue a proforma invoice as a part of their process to ensure that the transaction and delivery process go smoothly. 

A proforma invoice mentions a near-to-exact estimate of the actual price of the goods to be delivered to the buyer, in addition to other expenses such as the commissions and charges of delivery, among others.  A pro forma invoice ensures that the buyer or the customer is aware of the upcoming financial commitments which they will have to incur at the time of the delivery of the product(s). 

Format of Pro forma invoice 

The prescribed proforma invoice format consists of details regarding the goods which are yet to be delivered to the buyer. What you will find below is a list of details that you can typically find on a proforma invoice sample piece. 

  • The address of the supplier

  • The unique invoice number

  • The address of the prospective buyer

  • Description of the goods or services that are promised

  • Cost per unit of the goods that make up the cargo

  • Validity of the Pro forma Invoice

  • Proposed terms of sale (Based on previous conversations around it)

  • Proposed terms of payment (if they are applicable)

  • Certifications required by customs (if in case the goods being transferred are an export/import)

  • Signature of the authorized person from the company of the supplier

Change in Proforma Invoice After GST

There have been a few changes to the proforma invoice format after GST. However, one cannot say that the changes to the pro forma invoice format in question or the list of its constituents are drastic in any sense of the term. Let us have a look at the changes:

  • GST Pro forma Invoice now consists of the GST number. However, in the Pre-GST era, the Proforma Invoice format consisted of VAT and/or Sales Tax registration numbers.

  • GST Pro forma Invoice now even contains information concerning the product’s HSN (Harmonized System of Nomenclature) and the SAC (Service Accounting Code) Codes assigned to the Goods and Services being moved around.

GST Pro forma Invoice also now includes the SGST, CGST, and IGST classification of tax rates, which vary and are based on the nature of supply (Interstate or Intrastate).

Difference between Proforma Invoice, Invoice, Estimates & Purchase Order

While the pro forma invoice and the invoice are often two interchangeably used terms as per many, they are quite different. The final invoice is a commercial document and is, as the name implies, the final copy of the same, whereas a proforma invoice is given prior to the shipment of the discussed goods and services which are to be delivered to the buyer. In the meanwhile, the estimates and purchase order also differ from each other when it comes to who raises them and who it is issued to.

Details

Proforma Invoice

Invoice

Estimates

Purchase Order

Definition

It is a document/invoice that contains all the information pertaining to the goods or services

It is a commercial documents that is the final invoice

It is a formal estimate of price of the goods and services and the total amount that that the buyer has to pay

This is a document that the buyer will issue to send to the supplier that consists the details of the goods or services.

Main objective

Helps the buyer decide on the purchase and verify the particulars

To let the buyer know that the payment is due

To give an estimate of the price of the goods and services that are yet to be delivered

To order the goods or services from the supplier

Issue time

Before the buyer gets the goods or services delivered

Before the supplier receives the payment

Once the buyer requests for it, but before the good or services are delivered to the buyer

Once the buyer is sent the Proforma invoice or receives the quotation

Raised by

Supplier

Supplier

Supplier

Buyer

Issued to

Buyer

Buyer

Buyer

Supplier

Meaning of acceptance

Creating a sale

Sale confirmation

Creating a sale

Contract of sale

Negotiability

Negotiable

Non-negotiable

Negotiable

Not applicable

To know more about GST and the information related to the changes in the proforma invoice format under GST, you can visit Finserv MARKETS.

FAQs

  • ✔️What is a Proforma Invoice?

    Pro forma invoices are issued ahead of that of the final invoice, so that the buyer becomes aware of the price, the quantity which is being shipped and additional charges along with terms/conditions. One of the reasons it is issued is so that the inconsistencies in the terms agreed upon verbally and the ones expected to show up in a final invoice are immediately addressed..

  • ✔️What separates a Pro Forma Invoice from a Final Invoice?

    Final invoices are issued when sales are made. A pro forma invoice, on the other hand, is issued prior to the sales so that the buyer becomes aware of the price and the quantity of goods/services along with additional applicable charges and the terms of the sales.

  • ✔️What is the Format of a Pro Forma Invoice Under GST?

    Pro forma invoice is actually outside the scope of GST as the same is not payable on the issuance of a pro forma invoice. Also, it must be noted that no specific format is prescribed by the officials representing the GST council.

  • ✔️Is a Pro Forma Invoice Binding Upon the Parties Which are About to Enter Into a Supply Transaction?

    As a pro forma invoice is not an original/tax invoice, it is inconceivable to think that it has a legal validity. Ergo, it does not have the power to legally bind the parties to the terms previously discussed in a supply transaction.

  • ✔️For how long is a Pro Forma Invoice Valid?

    The validity of the pro forma invoices will depend upon the kinds of businesses which are handing them out and the kind of industry they are in. You will always find a specific date up until when the pro forma invoice is valid on the document itself.

  • ✔️Which Industries Primarily Make use of a Pro forma Invoice?

    Commercial establishments which are set up in almost all industries use pro forma invoices frequently due to its several uses. The list of industries that frequently use the pro forma invoice during the process of the movement of goods and services are the likes of manufacturing, EXIM, trading, the wholesaler community and independent dealers, among others.