Proforma Invoice: An Overview

Definition and Purpose

A Proforma Invoice (PI) is a document issued by a seller to a buyer that states a commitment to deliver products or services for a specific price. It is not a true invoice but serves as a preliminary agreement. The PI outlines the terms of the transaction, including the quantity, description, and price of the goods or services, as well as the payment terms and delivery details.

Key Facts

  1. Proforma Invoice (PI): A PI, or proforma invoice, is a document issued by a seller to a buyer that states a commitment to deliver products or services for a specific price. It is not a true invoice but serves as a preliminary agreement.
  2. Purchase Invoice: A purchase invoice is an invoice issued by the buyer of goods. It contains details of a purchase, including items, amount, date of payment, and vendor/supplier details. It is generated after the purchase order is fulfilled.
  3. Purchase Order (PO): A purchase order is a document used by the buyer to place an order with suppliers. It initiates a transaction and may not include the price of the products. A purchase invoice is issued after the purchase order is fulfilled.
  4. Components of a Purchase Invoice: A purchase invoice typically includes the following components:
    • Invoice number
    • Purchase order number
    • Date of issue
    • Vendor/supplier details
    • Items description (quantity, unit price, product code)
    • Total amount due, including taxes.

Components of a Proforma Invoice

A typical PI includes the following components:

  • Invoice NumberA unique identifier for the invoice.
  • Purchase Order NumberThe number of the purchase order placed by the buyer.
  • Date of IssueThe date on which the invoice was issued.
  • Vendor/Supplier DetailsThe name, address, and contact information of the seller.
  • Items DescriptionA detailed description of the goods or services being purchased, including quantity, unit price, and product code.
  • Total Amount DueThe total amount owed by the buyer, including taxes and any other applicable charges.

Purchase Invoice vs. Proforma Invoice

A purchase invoice is issued by the buyer after the purchase order is fulfilled. It contains similar information to a PI, but it also includes the actual amount paid by the buyer. A purchase invoice is a record of the transaction and serves as proof of payment.

Purchase Order vs. Proforma Invoice

A purchase order is a document used by the buyer to place an order with a supplier. It initiates a transaction and may not include the price of the products. A PI is issued after the purchase order is fulfilled and serves as a preliminary agreement on the terms of the transaction.

Conclusion

Proforma invoices and purchase invoices are essential documents in the procurement process. They play different roles and serve distinct purposes. By understanding the differences between these two types of invoices, businesses can ensure accurate and efficient financial transactions.

References

FAQs

 

What is a proforma invoice?

A proforma invoice (PI) is a document issued by a seller to a buyer that states a commitment to deliver products or services for a specific price. It is not a true invoice but serves as a preliminary agreement.

 

What are the components of a proforma invoice?

A typical proforma invoice includes the following components: invoice number, purchase order number, date of issue, vendor/supplier details, items description, and total amount due.

 

What is the difference between a proforma invoice and a purchase invoice?

A proforma invoice is issued before the purchase order is fulfilled, while a purchase invoice is issued after the purchase order is fulfilled. A proforma invoice is a preliminary agreement, while a purchase invoice is a record of the transaction.

 

What is the difference between a proforma invoice and a purchase order?

A proforma invoice is issued by the seller, while a purchase order is issued by the buyer. A proforma invoice outlines the terms of the transaction, while a purchase order initiates the transaction.

 

When is a proforma invoice used?

A proforma invoice is typically used when a buyer needs to obtain a price quote from a seller before placing an order. It can also be used as a preliminary agreement between the buyer and seller.

 

Is a proforma invoice legally binding?

A proforma invoice is not legally binding, but it can serve as a basis for a contract between the buyer and seller.

 

What are the benefits of using a proforma invoice?

Proforma invoices can help businesses to:

  • Secure price quotes from suppliers
  • Establish clear payment terms
  • Avoid misunderstandings and disputes
  • Streamline the procurement process

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