Can payment be made on a proforma invoice?
If you run a business, you’ve probably issued a proforma invoice to a customer. However, proforma invoices differ greatly from a standard invoice. This article explains what proforma invoices are, how they differ from standard invoices and answers the important question, can you accept payment on a proforma invoice?
The simple answer is no, a payment can’t be made on a proforma invoice. However, in order to understand why, the difference between proforma invoices and standard invoices must be understood.
A proforma invoice is a document a business sent to the customer before the details of the sale have been finalised. It’ll usually have the same format as a standard invoice, however, the document will be titled ‘proforma invoice’.
In contrast, an invoice is a document issued to the customer once all of the details have been finalised and a payment date is set. It’s a legal document describing the products and services being sold and the amount owed.
Although both documents look very similar, the information on a proforma invoice is slightly different: it won’t include an invoice number, and will include the ‘proforma’ label rather than ‘invoice’.
Proforma invoices are essentially ‘draft invoices’, meaning they don’t have the same legal importance as finalised invoices. Therefore, this means that:
A customer is not legally required to pay the amount on a proforma invoice
Proforma invoices cannot be used to reclaim VAT
The amounts stated on a proforma invoice won’t be included on accounting reports
For starters, a proforma invoice is not an official document. This means that the customer isn’t obligated to pay the amount on the proforma invoice. Proforma invoices don’t meet the requirements for an invoice. An invoice must include an invoice number, and invoice label, which do not appear on a proforma invoice.
A full invoice is needed in order to document a sale. Only once a finalised invoice has been issued can the business accept a payment from the customer, link the payment to the invoice and have the payment recorded in its accounting reports such as the balance sheet and profit and loss statement.
Even though a customer isn’t obligated to pay a proforma invoice, these documents have an important role in the sales process. The proforma invoice is issued once the customer has committed to the sale, but hasn’t yet confirmed the final details. In other words, a sale will happen, but the invoice may change.
Put simply, proforma invoices are issued when the sale is ‘waiting to be finalised’, whereas standard invoices are issued when the sale is ‘confirmed’.
Again, the answer comes down to which stage the sale is in. A quotation is usually issued when a customer is making an enquiry but has not committed to the sale, and may not make a purchase at all. With a proforma invoice, the customer has already committed to the sale but hasn’t yet confirmed the details.