A preliminary invoice sent before delivery of goods or services
A proforma invoice is a preliminary bill of sale sent to a buyer before the actual delivery of goods or services. Unlike a tax invoice, it is not a demand for payment but rather an estimate or declaration of intent that outlines the expected costs, terms, and conditions of a sale. Indian businesses commonly use proforma invoices for advance payment requests, import-export transactions, and to provide buyers with a detailed cost breakdown before finalizing the deal. It typically includes item descriptions, quantities, rates, applicable taxes, delivery charges, and payment terms. A proforma invoice is not recorded in your books of accounts and has no GST liability since no actual supply has taken place. Once the buyer accepts and the goods are delivered, a proper tax invoice replaces the proforma invoice. It helps build buyer confidence and reduces order disputes.
You run an electronics wholesale business in Hyderabad. A retailer in Vizag wants to order 50 LED TVs. You send a Proforma Invoice: 50 x LED TV 43-inch at Rs. 18,000 each = Rs. 9,00,000, GST @18% = Rs. 1,62,000, Transport = Rs. 5,000, Total = Rs. 10,67,000. The retailer uses this to arrange funds and confirm the order.
A proforma invoice is not a legally binding demand for payment. It is an estimate or declaration of intent. However, once the buyer accepts and you deliver goods based on it, the terms mentioned (prices, quantities, delivery) may be considered an informal agreement. To make it binding, use a formal purchase order or sales contract alongside the proforma.
Both serve a similar purpose — providing price estimates before a sale. A quotation is typically used when a buyer requests pricing, while a proforma invoice is issued when a deal is more certain and the buyer needs a formal document for fund arrangement or import clearance. A proforma invoice looks like a final invoice and often includes payment terms and delivery details, while quotations may have multiple options or validity periods.
Manage inventory, billing, and accounting effortlessly.