What is a Proforma Invoice Vs Invoice and How airSlate SignNow Simplifies the Process

Understanding Proforma Invoices

A proforma invoice is a preliminary bill of sale that outlines the details of a transaction before it is finalized. It serves as a commitment from the seller to provide goods or services at a specified price. Proforma invoices are often used in international trade, where they can help facilitate customs clearance and provide buyers with an estimated cost before the actual invoice is issued. This document is not a demand for payment but rather a way to inform the buyer of the expected costs and terms of sale.

Key Features of Proforma Invoices

Proforma invoices typically include essential information such as:

• Seller and buyer contact information
• Description of goods or services
• Estimated prices and total cost
• Payment terms and conditions
• Delivery details and timelines

This information helps buyers make informed decisions and prepares them for the eventual transaction.

What is an Invoice?

An invoice is a formal request for payment issued by a seller to a buyer after goods or services have been delivered. Unlike a proforma invoice, an invoice serves as a legal document that indicates the amount due and the payment terms. Invoices are essential for accounting and tax purposes, as they provide a record of sales and can be used to track payments and outstanding balances.

Key Features of Invoices

Invoices generally include the following elements:

• Invoice number for tracking
• Date of issue and due date
• Detailed list of goods or services provided
• Total amount due, including taxes and discounts
• Payment methods accepted

This structured format ensures clarity in the transaction and provides a clear record for both parties.

Comparing Proforma Invoices and Invoices

While both documents serve important roles in business transactions, they have distinct purposes:

• A proforma invoice is issued before the sale to provide an estimate, while an invoice is issued after the sale to request payment.
• Proforma invoices are not legally binding, whereas invoices are formal requests for payment and can be enforced in legal situations.
• Proforma invoices may not include payment terms, while invoices clearly outline payment expectations.

Understanding these differences can help businesses manage their financial transactions more effectively and ensure compliance with accounting practices.

When to Use Each Document

Businesses should use proforma invoices when:

• Providing estimates for potential sales
• Engaging in international trade to facilitate customs
• Negotiating terms before finalizing a sale

In contrast, invoices should be used when:

• Goods or services have been delivered
• A formal request for payment is necessary
• Maintaining accurate financial records for accounting

Choosing the appropriate document based on the transaction stage can enhance clarity and efficiency in business operations.