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Proforma invoice format in word for Financial Services

hiya folks welcome back to the small business toolbox where we talk about the nuts and bolts of self-employment in the UK I'm Andy mark and I've been self-employed for a long time and I'm just hoping that some of the things that I've learned over the years can benefit you in some way last time we had a little chat about invoicing and actually getting paid by your customers today we're going to chat about a different type of invoice and that's called a pro-forma invoice a regular invoice is generally used to get paid for work that you've already done but what if you want to get paid in advance for some work well that's where the pro forma invoice comes into play as were briefly touched on last time a regular invoice fulfills two different roles it's a tax document and it's a legal document a pro forma doesn't work like that it's not a tax document it's of no use whatsoever for your accounts or the accounts of the person that you'd give it to and it's also only loosely a legal document it kind of depends on terms and conditions that you might earn for something a pro forma but generally speaking your pro formas not going to carry the same weight as an actual invoice in many ways a pro forma invoice is actually closer to a quote than an invoice so as per usual you can download a template pro forma invoice off my patreon there's a link in the description below or you can generate your own they're relatively easy to make let me talk you through one and explain the sort of information that you might want to include in a pro forma invoice one of the key things to remember with a pro forma is that there's really no right and wrong there's no official guide or official way that a pro forma invoice should look this is just what I've seen over the years and based on what companies have given to me for invoices and to my companies for invoices everyone does it slightly differently and really all I would say is this is a starting point for your business and I would say check with your accountant maybe check with your solicitor if you've got one and check that there happy with the way that you're doing things it's really up to you to do your own homework that this is going to be suitable for your business but as I say if you want to download this particular excel template for a pro forma it's on my patreon and you can get access to it from there and it just gives you a starting point over the years I've seen some companies that literally generate a quote and then all they do is they change the wording at the top instead of saying quote they change it to pro forma I've seen some companies that generate an invoice and just change it from invoice to pro forma at the top and I've seen some that do it in more of a kind of halfway house between a quote and an invoice which is more what this is if you disagree with anything I'm saying in this police pops down in the comments below because as I say there's a number of schools of thought on how this should be done let me take you through every section and kind of explain what's going on here so firstly and most importantly was saying at the top here that it's a pro forma invoice and any accounts department that you're going to be dealing with they're gonna know straight away what that means if you're dealing mostly b2b business-to-business you might find that if you want to be paid in advance for something that that company insists on getting a pro forma invoice they might not pay you in advance for products or services if you give them a normal invoice because they might turn around and say well I haven't received the goods yet so you can't give us a normal invoice please can you assume a pro forma that's a prime example of where you would issue a pro forma is if the customer you're dealing with insists on getting one remember the whole objective here is to get paid before you've done anything so we're saying on the invoice pro forma invoice and this briefly mentioned one of the key differences with the pro forma is that this can't be used for tax purposes it can't be used to reclaim VAT if you charge VAT so on a pro forma you should absolutely put on that this is not a tax invoice or this is not a VAT invoice I prefer to put this is not a tax invoice because even if you're not that registered for your own accounting records and for the accounting records of the company that you're dealing with they need to know that they can't use this invoice for their own tax purposes like whether it's corporation tax or self-assessment tax you can't use a purl former as part of your log of receipts and all that sort of thing so say for example you've bought something off a company and they give you a pro forma invoice you can't include that as part of your receipts you need to get a proper receipt or a normal invoice to use that as part of your accounting records a pro formas no use because by the very nature of a pro forma nothing's happened yet at the point that this is issued no one's bought anything no one's received anything and no money has changed hands so over on the right here we've got date issued I think it's a good idea to put a date on it so that they've got a record of when they received it now the order of reference this is an interesting one and again this is something to do your own research on I have read stuff that says that you shouldn't put an invoice reference or a reference number of any description on a pro forma but to me that would just be the most impractical thing in the world you need to be able to cross-reference this back to the the order most companies that I've dealt with use the invoice number as a reference number on the pro forma because normally they'll turn the pro forma into an invoice once the goods have been delivered it's up to you what reference number you use but I've just shown an order ref in same format as I explained on the invoices video last time so do your own homework on whether or not you want to use reference number on a pro forma obviously we've got the customers full contact details so name an address and all that sort of thing and then into the main body of the pro forma invoice pretty much same as a normal invoice really except we're making it clear that it's pre payment in advance for whatever you're providing give a bit of detail of obviously what they're paying for if this is for a substantial amount of money you know you might be selling 50 grands worth of computer equipment to a company and you need to get paid in advance or whatever then just make sure that the sufficient detail in there that you will get paid if in doubt speak to the company that you're dealing with and ask what they want included on the invoice to make sure that it's paid promptly so I don't need to go into that fairly self-explanatory and then down the bottom of the pro forma obviously we've got the grand total amount do you as I say I'm not VAT registered and I'm assuming you're not VAT registered if you are then you would need to include VAT at the bottom there so you would include a breakdown of the VAT and the grand total amount see which probably changed up there just subtotal and put grand total at the bottom there bear in mind that the company can't use this pro forma to reclaim their butt so they will expect to receive a proper VAT invoice this is not about invoice can't be used to reclaim that by the company that you're dealing with they will expect to receive a proper VAT invoice as soon as the goods and services have been fulfilled so just bear that in mind but they will have to pay you the grand total including the VAT if that turns into a problem because a lot of businesses will say well I'm not paying you the VAT because I can't reclaim it using this pro forma invoice in which case have a chat with them and maybe just issue a normal invoice instead if that's going to be a stumbling block maybe don't use a pro forma and just stick to a bog-standard invoice that they can reclaim the the v80 on as usual but I'm assuming for the purposes of this that you're not VAT registered anyway and as such you should mention that on the invoice no v80 to pay so that they know they don't need to expect about invoice and they can't reclaim any VAT anyway now this is something that I often see missed out of pro formas and I would give it some thought and I would put a line on just saying how long the pro forma is valid because you might be providing goods or services where the price fluctuates say for example its computer equipment or something like that you might have issued a pro forma for twenty five grands worth of gear but then they don't pay if for thirty days and by the time they've paid you that stuff might have gone up to thirty five grands worth of gear you know it it might have fluctuated and that might cause a problem so I would tell the customer how long this price is valid for just so you don't get into that situation where they dragged the heels on paying you and then the price isn't valid anymore you know II explained that last time go and check the invoice video that are made Timms and conditions this is a bit of a funny one because here terms and conditions probably aren't gonna reference pro formas remember a pro forma isn't a legally binding document technically but you might want to include stuff in your terms and conditions that refers to how pro forma invoices work again it depends on your own individual business model but there's no real Hartmann including a link to your terms and conditions it's just your terms and conditions might not be relevant to a pro forma invoice obviously you need to include how to get paid this is probably the most important bit because the whole point of a pro forma is to get paid in advance for product or services so you need to tell them how to pay you if needs be put this in baldon in big letters in the body of the invoice so there's no doubt on payment methods that you accept and your bank details if they're going to be doing a bank transfer and then obviously as well you need to include your own business details your business name business address postcode contact details just everything to make it easy for the company that you're dealing with to pay you because if they're missing any of that information and running accountancy software they'll not be able to enter you on their system as a payee without having key information such as SATs so it's normally because of stuff that ends up getting left off invoices and pro forma invoices that results in delayed payment so don't give them any excuse to delay paying you so remember as soon as you've been paid and you know that it's cleared payment in your bank account watch out for scams by the way where they pretend that they've paid you and they haven't actually paid you seen that a few times before make sure if it's an unknown entity that you're dealing with that you've definitely got cleared payment in your bank account before you send any goods out to customers businesses get stung in non-payment scams all the time so be really careful if it looks too good to be true and someone's putting an order in for an unusual amount of equipment and you've never heard of that company and it looks slightly suspicious really really do your homework on that because I've seen so many scams where a significant quantity of goods have been sent out to bogus companies through them pretending to pay you in advance and then it's been like a bounced check or it's been some other money transfer scam or whatever so do be really careful if it looks too good to be true it probably is too good to be true in my experience if a company gets in touch with you want to order a massive amount of equipment and you've never heard of them and you've never dealt with them before and they seem eager to pay you really really quickly and just receive the goods in my experience nine out of ten times that's been a scam I'm not saying don't deal with them just be very very careful I'll tell you some stories about that on a different video but assuming that you are dealing with a legitimate company just make sure that you get the proper invoice sent out to them as quickly as possible especially if you have out registered because they're going to want to reclaim the VAT and they can't do that until you've sent out a proper normal invoice so what it's been paid once you've sent the goods out get a normal invoice issued and you can put on it paid and when it was paid remember as well that both yourself and the customer that you're dealing with you need to both be aware of when the tax point is for transactions like this the tax points a really important thing to get your head around because it's kind of setting a date in stone of where this ends up on the financial records for yourself and the financial records of the company that you're dealing with this is something to check with your accountant but normally if you're charging in advance for goods or services the tax point date is going to be the date that you received the payment so in that sort of situation you could end up having to generate an invoice that has two different dates on it you could end up with an invoice date in other words a date that you sent the invoice out and a tax point date which might be two weeks before that depending on when they paid you so just bear that in mind if you do a lot of work with payments upfront especially b2b then check with your accountant on the best way that it needs to work for your business and remember as well if you do charge v80 there are some extra rules that you need to bear in mind in terms of the invoice date and the tax point date and things like bat cash accounting and stuff like that you need to take all that into the equation and that's where an accountant is going to be worth their weight in gold this is just intended as a starting point to kind of explain the basics of a pro forma to you and it's worth mentioning as well if you do mainly deal b2c so business to consumer then they probably don't care whether they get a normal invoice or a pro forma invoice just bear that in mind but if you issue a normal invoice through a customer and this applies whether it's b2b or b2c and then they don't pay it and they don't go ahead with the order then you're going to have to issue a credit note to cancel out the invoice that you've raised and we'll cover that on a future video but just bear that in mind so if they're a bit of an unknown you're not sure whether they're going to pay or not then a pro-forma might be a better route to go down because if they don't pay there's been no exchange of goods or services anyway and basically nothing happens until they've actually coughed up but if you do go down the normal invoice route and they don't pay you're gonna have to balance that out on your account somehow normally with a credit note in my personal experience I prefer to use a normal invoice 99% of the time and really there's only two scenarios where I would use a pro-forma and that is brand new customers who you're not sure if they're going to pay you for the goods or services and you don't want to take that risk on putting them onto a credit account and established companies who refuse to pay you in advance unless you give them a pro forma invoice so if it's a company specifically asking for a pro forma do a pro forma other than that I would normally just do a normal invoice but bear in mind that if a normal invoice doesn't get paid as I just mentioned you're gonna have to go through cancelling the invoice in some sort of way issuing a credit note to balance your accounts back out and all that sort of thing you need to do your own homework on when you think you need to do a pro forma instead of a normal invoice if you've got any questions or comments pop them below we're going to be covering off a few other invoice related topics in future videos including credit notes and receipts so if there's anything else that you want me to cover then please let me know there now absolute best of luck with your business and I shall see you next time bye