Introduction
A Proforma Invoice and an Invoice are two commonly used commercial documents, but their purpose, timing, and legal effect are fundamentally different. A Proforma Invoice is a preliminary document issued before the actual sale takes place, whereas an Invoice is a final document issued after the sale, acting as a request for payment. Understanding the difference is crucial for correct accounting treatment, GST implications, and commercial communication.
Key Differences between Proforma Invoice and Invoice
| Basis | Proforma Invoice | Invoice |
|---|---|---|
| 1. Meaning | A preliminary estimate sent by the seller before the sale is confirmed. | A final document issued after the sale, demanding payment from buyer. |
| 2. Stage of Issue | Issued before supply of goods. | Issued after goods are supplied or sale is completed. |
| 3. Purpose | To provide details of price, quantity, terms, and conditions for approval. | To request payment and serve as proof of sale. |
| 4. Legal Status | Not a legal document; cannot be used to claim payment. | A legal document; can be used to enforce payment. |
| 5. Accounting Entry | No accounting entry is passed. | Accounting entry is passed in seller’s and buyer’s books. |
| 6. GST / Tax | No GST or tax is levied on Proforma Invoice. | GST and tax details must be included in the Invoice. |
| 7. Payment Obligation | No payment obligation arises. | Buyer is legally required to make payment. |
| 8. Negotiation | Used for negotiation and approval before the final sale. | Not negotiable; it is a finalized document. |
| 9. Use Case | Used for quotations, tenders, export documentation, and customs evaluation. | Used for sales, billing, collection, and accounting purposes. |
| 10. Binding Nature | Not binding on buyer. | Binding on buyer once goods are delivered. |
Conclusion
Thus, a Proforma Invoice is only an indicative document showing the seller’s intention and details of goods, while an Invoice is a legally enforceable document demanding payment. The distinction plays an important role in accounting treatment, taxation, and commercial communication. Hence, both documents serve different purposes and must be used appropriately in business transactions.