Pro Forma Invoice Explained: Why, When and How to Use It

A pro forma invoice is a preliminary document sent to a buyer before a sale is finalised, outlining the expected costs, terms, and transaction details. Unlike a standard invoice, it is not a request for payment. 

In the following sections, we define pro forma invoices in more detail, explore why they are important, show you how to use them, and more. 

What Is a Pro Forma Invoice?

A proforma invoice is a preliminary bill of costs that is sent to a client before a merchant supplies any products or performs a service. It’s not a payment request and is not recorded for accounting.

A pro forma invoice lists the number of goods, a description of the items, their prices, and VAT, where necessary. It can also include any other details to make the initial process of the buyer’s interest in your products a bit more formal.

Say that you own a business in the UK and you’ve got a client in Spain who’d like to order 50 leather sofas from you. Before you ship your goods and before they make the  payment, your client will want something like a quote from you to know and expect how much they’d have to pay you. This is known as a pro forma invoice.

Why Do Businesses Use Pro Forma Invoices?

The pro forma sets the scene for negotiation and demonstrates the business’s interest in providing goods or services at a certain price and at a certain time. It also registers the customer’s acknowledgement of the product or service and their willingness to pay to obtain it. 

It starts the quote-to-cash process and acts as an asset that reduces processing time and costs.

Businesses rely on pro formas for several clear reasons. They help to:

• Set clear terms with customers and prevent misunderstandings;
• Streamline the sales process;
• Stabilise international shipping transactions;
• Ensure everyone is on the same page and has agreed to the same terms before the final invoice is sent to the customer;
• Provide a formal record for customers and the business;
• Inspire commitment from the customer.

For these reasons, pro formas are now part of modern business processes.

When To Send a Pro Forma Invoice?

Businesses use pro forma invoices after a buyer shows clear intent to purchase but before they issue the final invoice.

Here are the most common use cases, grouped for clarity.

International Trade and Customs

Pro forma invoices support import and export operations and act as a pre-clearance tool.

For customs, they help teams:

• Declare the transaction value used to estimate duties and taxes;
• Provide shipment data before the final invoice.

Teams use this information to pre-align with customs brokers, validate classification and valuation, and flag compliance risks early. This reduces inspection rates, prevents reclassification disputes, and avoids clearance delays and unexpected charges at the border.

Internal Purchase Approvals

Pro forma invoices support internal purchase approvals and control spend before commitment.

They allow buyers to:

• Submit validated costs (pricing, quantities, taxes, shipping) for review;
• Trigger approval workflows based on budget thresholds and policies.

Finance and procurement teams use the document to check budget availability, assign cost centers, and confirm vendor terms before issuing a purchase order. This prevents unauthorized spend but also reduces budget overruns and creates a clear audit trail for approvals.

Projects with Variable Scope

For services or projects where details may change, a pro forma invoice helps set initial expectations. 

They help teams to:

• Define initial scope, pricing assumptions, and deliverables;
• Outline what may change (rates, volumes, timelines, change-order triggers);
• Share a cost model that stakeholders can review before work begins.

Project and finance teams use the document to align expectations and plan budgets. They set approval thresholds for scope changes. It also serves as a reference for change orders, which reduces disputes and preserves margin visibility while preventing uncontrolled scope creep.

Pre-Shipment Confirmation

A pro forma invoice is often used to confirm order details before goods are dispatched. 

They help teams to:

• Confirm quantities, pricing, delivery terms, and packaging details with the customer
• Validate the order against the purchase agreement before release to warehouse or logistics
• Capture agreed terms in case of transit damage or delivery disputes

Operations and logistics teams use the document as a final checkpoint before shipment. It reduces order errors, prevents last-minute changes, and ensures alignment between sales, warehouse, and the customer.

It is important to note that a pro forma invoice is issued after the customer agrees to purchase, but before final billing. It does not create a payment obligation and may still change if order details are updated.

Teams can generate pro forma invoices using standardized templates or through invoicing systems that support draft and pre-invoice workflows.

What To Include on a Pro Forma Invoice

Think of a pro forma invoice as a structured preview of the final invoice – clear, detailed, and easy for the buyer to review and approve.

Use the checklist below to make sure your pro forma invoice includes everything required:

• Clear label – Include the wording “Pro Forma Invoice” and a note such as “This is not a tax invoice” to avoid confusion
• Seller details – Your company name, logo (optional), billing address, and contact information
• Dates – Issue date, expiry date (e.g. 30, 60, or 90 days)
• Buyer details – Customer name, company (if applicable), and billing/shipping address
• Description of goods or services – A clear breakdown of what is being sold
• Quantities – Number of units for each item
• Pricing details – Unit price for each item, total price per line item
• Taxes (if applicable) – Include VAT or other relevant tax rates and amounts
• Total amount – The full estimated cost the buyer is expected to pay 
• Payment terms – Outline key terms such as payment method, deadlines, or conditions

You can create pro forma invoices for your customers by using these practical guidelines and best practices. Make sure that you provide accurate information under each component and be as detailed as possible during the process.

How To Create a Pro Forma Invoice

Creating a pro forma invoice doesn’t have to be complicated. By following a clear, step-by-step approach, you can produce a professional document that gives your customer a transparent preview of costs and terms before the final invoice is issued.

Here is how this process works:

• Step 1: Choose a Format or Template. Start by selecting how you want to create your invoice. You can use accounting software, a dedicated invoicing tool, or simple formats like Word or Excel. Using a template helps ensure consistency and saves time.

• Step 2: Add Your Business Details. Include your company name, address, and contact information. Adding your logo is optional but can make the document look more professional and recognizable.

• Step 3: Assign a Unique Invoice Number. Give your pro forma invoice a unique reference number. This makes it easier to track, organize, and refer back to the document if needed.

• Step 4: Enter Customer Details. Add the buyer’s name, company (if applicable), and accurate billing and shipping addresses. This ensures clarity and avoids confusion later in the process.

• Step 5: List Goods or Services Clearly. Provide a detailed breakdown of what you are offering. Include descriptions, quantities, and unit prices for each item so the customer can easily understand the costs.

• Step 6: Calculate Totals. Work out the subtotal, apply any relevant taxes (such as VAT), and show the final estimated total amount. Transparency here helps build trust and prevents misunderstandings.

• Step 7: Define Payment Terms. Clearly outline how and when payment should be made. Include accepted payment methods, due dates, and any specific conditions related to the transaction.

• Step 8: Add Notes or Disclaimers. Include a note stating that this is a pro forma invoice and not a final tax invoice. You can also mention that prices or details may be subject to change.

Follow these steps to create a clear and professional pro forma invoice that sets expectations from the start and supports a smooth transaction process. Include accurate details to build trust with your customers and reduce the risk of disputes later.

Advantages of a Pro Forma Invoice

Other than showing your professionalism in doing business, using pro forma invoices offers the following advantages: 

• Ensures a smoother sales process.
• Provides the customer with all the required information.
• Details can be changed or negotiated.
• Does not hold the status of a legal agreement.
• Can be helpful in checking for errors.
• Can stand in the place of an invoice if all the details aren’t available yet.
• Can help with internal purchase processes.

Overall, the key benefit of the pro forma invoice is that it improves the preliminary understanding and commitment of both the buyer and the seller.

What’s the Difference Between a Pro Forma Invoice and an Invoice?

The pro forma invoice vs sales invoice debate can seem confusing at first, but there are a set of differences that clearly separate one from the other.

First, a pro forma invoice doesn’t have an invoice number like an invoice does. Second, it is not legally binding like an official invoice is. This means it can be cancelled without an obligation by the buyer to make a payment. 

In addition, merchants do not use a pro forma invoice for accounting purposes like an invoice is and therefore, do not record it as such. 

We highlight the main differences between a pro forma invoice and a sales invoice in the table below:

Element	Pro Forma Invoice	Sales Invoice
Invoice Number	Typically does not include an official invoice number	Includes a unique invoice number
Legal Status	Not legally binding	Legally binding document
Accounting Treatment	Not recorded in accounting systems	Recorded as part of official financial records
VAT Implications	Not used for VAT reporting or tax purposes	Used for VAT reporting and tax calculations
Payment Obligation	No obligation for the buyer to pay	Creates a legal obligation to pay

Is a Pro Forma Invoice Legally Binding?

No, a pro forma invoice is not legally binding as it is not considered a part of the official legal documents. 

Pro formas can easily be compared to an estimate rather than a legal invoice. This is partially due to the fact that buyers aren’t obliged to pay the amount presented on the pro forma and that the amount due is not listed under the shopper’s accounts payable or accounts receivable. 

In addition, unlike a regular invoice (or a VAT invoice for those registered for VAT), the pro forma doesn’t need to include VAT information and, therefore, cannot be used to reclaim VAT.

How Pro Forma Invoices Help With International Trade 

Considering the role pro forma invoices have, it’s safe to say that they play a key role in international trade, especially during the early stages of cross-border transactions.

An international pro forma invoice provides a summary of the shipment before the goods are actually dispatched. This helps the buyers and authorities set realistic expectations on what they can expect.

It also plays a crucial role for customs declarations and documentation. Customs authorities often require a pro forma invoice to establish the value of goods for import duties and taxes. It’s also key when reviewing shipment goods before arrival and preparing documentation in advance of the final commercial invoice.

Using Digital Tools to Create Pro Forma Invoices

Creating a pro forma invoice isn’t anything challenging, yet for small businesses, performing this task manually can be time-consuming and prone to errors. 

To avoid such risks, companies can rely on digital tools, including:

• Invoicing software – enables businesses to create, customise, and send pro forma invoices quickly and easily using templates, automatic calculations, and more.
• Ready-made templates – downloadable pro forma invoice templates can help standardise your documents.
• Integrations with accounting systems – connecting your invoicing system with accounting software means automatic data flow between systems and minimal manual entry errors.
• Solutions that support payments and reporting – business payment solutions like myPOS can further simplify operations by merging payment processing with reporting tools.

Overall, by relying on the right digital tools, you can save time and create more efficient, scalable invoicing for your business and your partners. 

Conclusion

A pro forma invoice acts as a control point between agreement and execution.

Teams use it to align commercial, operational, and financial details before any irreversible step. For example, sales can confirm pricing logic and discounts, logistics can validate shipment structure, and finance can check tax treatment and currency exposure.

This early alignment reduces downstream corrections and prevents margin leakage from mispriced orders. It also gives stakeholders a shared reference that supports faster approvals and cleaner handoffs from sales to fulfillment and billing.

Disclaimer: Please be aware that the contents of this article and the myPOS Blog in general should not be interpreted as a legal, monetary, tax or any other kind of professional advice. You should always seek to consult with a professional before taking action, since the particulars of your situation may materially differ from other cases.

Frequently Asked Questions

Pro forma invoice vs quote: what’s the difference?

A quote is an initial estimate provided before a buyer commits, stating expected prices and terms. A pro forma invoice, on the other hand, is issued after the buyer shows intent to purchase, confirming the details of the transaction more formally.

Pro forma invoice vs commercial invoice: what’s the difference?

A pro forma invoice is a preliminary document sent before a sale is finalised, outlining expected costs and terms without creating a payment obligation. A commercial invoice, however, is the official, legally binding document issued after the sale is confirmed.

Can I convert a pro forma invoice into a final invoice?

Yes, a pro forma invoice can be used as the basis for a final invoice once all details are confirmed. Most invoicing software allows you to convert it directly, carrying over item descriptions, prices, and terms.

Can VAT be reclaimed from a pro forma invoice?

No. In the UK, VAT can only be reclaimed on a valid VAT invoice, and HMRC explicitly says a pro forma invoice is not acceptable evidence.

Can integrated payment systems simplify the quote-to-cash process?

Yes. In practice, they can shorten the gap between approval, payment and final invoicing, while reducing admin and improving visibility. HMRC’s e-invoicing guidance links digital invoicing with better traceability and improved cash flow.