Proforma Invoice: What It Is and When to Use One
A proforma invoice is a preliminary document that gives the client a clear picture of what they will be charged before the work begins. It is not a request for payment but a quote in invoice format. This guide explains what proforma invoices are, how they differ from regular invoices, and when to use them.
What is a proforma invoice?
A proforma invoice is a document that lists the goods or services to be provided with estimated quantities, rates, and total amounts. It looks like a regular invoice but is labeled "Proforma Invoice" and is sent before the transaction is completed. The client receives it as a preview of what the final invoice will look like once the work is done.
Proforma invoices are commonly used in international trade, where customs authorities require documentation of the shipment's value before it crosses borders. They are also used for large projects where the client needs a detailed breakdown for internal budgeting or approval processes. For a comparison of proforma invoices with other document types, see the invoice vs estimate vs quote guide.
The SEDI Invoice Generator does not have a dedicated proforma invoice template, but a proforma can be created by generating a regular invoice and adding "PROFORMA" to the document title or reference number. The key difference is intent: a proforma is informational, not a payment demand.
How is a proforma invoice different from a regular invoice?
The main difference is timing and purpose. A proforma invoice is sent before the work begins to confirm the scope and pricing. A regular invoice is sent after the work is completed to request payment. A proforma invoice is not a demand for payment and is not recorded as income in the seller's books. A regular invoice is a formal payment request and is recorded as accounts receivable.
For the client, a proforma invoice serves as a budgeting tool. It allows the client to review the costs before committing to the project. If the client agrees with the proforma, the work proceeds. If the client disagrees, the proforma can be revised without any financial impact. A regular invoice, once issued, represents an obligation to pay.
For the seller, a proforma invoice helps prevent scope creep. By documenting the expected costs before work begins, both parties agree on what is included and what would be charged extra. When the final invoice is issued, it can be compared to the proforma to justify any differences.
When should a proforma invoice be used?
Proforma invoices are most useful in three scenarios: international trade, large custom projects, and client approval workflows. In international trade, customs authorities require a proforma invoice to assess duties and taxes before the goods are shipped. The document describes the goods, their value, and the terms of sale.
For large custom projects such as software development, construction, or manufacturing, a proforma invoice gives the client a detailed cost breakdown before work begins. This allows both parties to agree on pricing upfront and reduces the risk of disputes later. For businesses that sell custom products, a proforma invoice confirms the specifications and pricing before production starts.
In client approval workflows, a proforma invoice serves as the final step before project kickoff. The client reviews the proforma, approves it, and work begins. The proforma becomes the reference document for the final invoice. For more on when to send invoices and how the timing works, see the invoice due date guide.
Is a proforma invoice legally binding?
No, a proforma invoice is not legally binding. It is a preliminary document that states the estimated costs. It does not create a legal obligation for the client to pay or for the seller to deliver. The legally binding document is the regular invoice issued after the work is completed, or the contract signed before the work begins.
However, a proforma invoice can be used as evidence of the agreed pricing if a dispute arises. If the client approves the proforma and then disputes the final invoice amount, the proforma shows what was originally agreed. For this reason, proforma invoices should be saved along with the client's approval for reference.
In international trade, the proforma invoice has more weight because customs authorities rely on it to assess duties. Providing inaccurate information on a proforma invoice for customs purposes can result in penalties, even though the document itself is not a contract.
How to create a proforma invoice?
To create a proforma invoice, use the same structure as a regular invoice but label it clearly. The document title should read "Proforma Invoice" rather than "Invoice". The reference number should include a prefix that distinguishes it from regular invoices, such as "PRO-2026-001". Include the same fields: seller and buyer details, description of goods or services, quantities, rates, total amount, and payment terms.
The key difference is that the proforma states estimated rather than final amounts. Include a note that the final invoice may differ based on actual quantities or scope changes. The payment terms on a proforma invoice indicate what the final terms will be, not current payment expectations.
Using the SEDI Invoice Generator, a proforma can be created by selecting Invoice as the document type and manually editing the title and number. Set the payment term to match what will be used on the final invoice. Save the proforma as a separate PDF and send it to the client for approval before starting the work.
What happens after a proforma invoice is accepted?
After the client accepts the proforma invoice, work proceeds based on the agreed scope and pricing. The proforma serves as the reference for the final invoice. When the work is completed, issue a regular invoice that matches the proforma or explains any differences. If the actual quantities or costs differ from the proforma, include line items that show the variance.
If the project changes significantly after the proforma is accepted, issue a revised proforma showing the updated costs. Do not proceed with work that exceeds the proforma without client approval. This protects both parties from unexpected charges and maintains trust in the business relationship.
Once the final invoice is paid, issue a receipt if the client requests one. The receipt confirms that payment was received and closes the transaction. The proforma, final invoice, and receipt together form a complete record of the transaction from quotation to payment.