Understanding Proforma Invoices
A proforma invoice is a document issued to a customer before the sale is confirmed. Unlike a quote or sales order, it is formatted like an invoice and is often accepted for formal purposes that require a document in invoice format.
Unlike a regular invoice, a proforma invoice is not a payment demand. Any payment made against it is recorded as an advance payment and not as invoice payment.
When Is a Proforma Invoice Used?
You can use a proforma invoice in the following scenarios:
- When a customer needs a document in invoice format for customs clearance, import permits, or other regulatory requirements.
- When a customer requires a document for internal approvals before confirming the purchase.
- When you need to share a pre-shipment document without affecting your accounting or inventory.
Scenario: Patricia runs a bakery and wants to buy new kitchen equipment from a vendor. To apply for a business loan, she needs a formal document that includes item details, taxes, and the total amount. The vendor shares a proforma invoice with her. Patricia submits this proforma invoice to the bank to support her loan request. After the loan is approved, the vendor can convert the proforma invoice into a regular invoice and proceed with the sale.
Life Cycle
You can create a proforma invoice manually or from a quote or sales order. It starts in the Draft status, where you can review and update its details. When you share the proforma invoice with the customer or mark it as sent, its status changes to Sent.
While it is in the Sent status, your customer can make advance payments for it. Once the customer confirms the sale, you can convert the proforma invoice into an invoice and its status updates to Processed.
If you do not convert the proforma invoice before its expiry date, its status changes to Expired.
This lifecycle helps you manage pre-sales communication, collect advance payments, and convert only confirmed sales into accounting transactions.
A proforma invoice can have the following statuses during its lifecycle:
- Draft: The proforma invoice is created but not yet sent to your customer.
- Sent: The proforma invoice is sent to the customer.
- Processed: The proforma invoice is converted into an invoice.
- Expired: The proforma invoice has crossed its expiry date before converting it into an invoice.
Configure Preferences
You can configure the preferences of the Proforma Invoices module based on your business requirements. To learn more, refer to our help document on Proforma Invoice Preferences.