If you're doing business across borders or preparing quotations for clients, you've probably come across the term proforma invoice. But many small business owners and freelancers still aren't sure what it is, when to use it, or how it affects taxes. In this blog, we’ll break it all down simply, so you can invoice smarter and stay tax-compliant.
What is a Proforma Invoice?
A proforma invoice is a preliminary bill or quotation sent to a buyer before delivering goods or services. It outlines the details of a transaction — items, prices, taxes, totals — but it's not a legally binding invoice for payment. Think of it as a draft or estimate of the final invoice.
It helps both the seller and buyer confirm details before making it official. It's commonly used in:
International shipping and customs documentation
Export/import businesses
Pre-sales quotations for B2B services
Do Proforma Invoices Affect Taxes?
No — a proforma invoice does not directly affect your taxes because it isn’t an actual transaction. It’s not entered in your books as income or a receivable, and it's not reported to tax authorities.
However, you should still include tax rates like VAT, GST, or sales tax to give your client clarity. This sets the expectation for the final invoice and avoids surprises later.
When Should You Use a Proforma Invoice?
Use a proforma invoice when you:
Want to give your customer a quotation with a clear item/tax breakdown
Need a document for customs or logistics
Are waiting for client confirmation before billing
Want to lock in a price estimate before delivery
Never treat it as a real invoice. Always follow up with a final invoice once the deal is confirmed.
What Information Should a Proforma Invoice Include?
Your proforma invoice should include:
Business name and contact info
Client details
Itemized list of goods or services
Quantities and unit prices
Applicable taxes (GST, VAT, etc.)
Estimated shipping costs
Valid-through date or quote expiry
A clear label: “Proforma Invoice – Not for Payment”
This keeps your documents professional and avoids confusion during tax filing or audits.
How to Create a Proforma Invoice for Free
You can generate a complete proforma invoice in minutes using the Free Document Maker Proforma Invoice Generator.
It’s free, no signup is required, and it helps you:
Add custom branding and logos
Include taxes and discount fields
Download or print high-quality PDFs
Use it on desktop or mobile
Once your customer approves the quotation, you can easily recreate it as a real invoice using our Invoice Generator.
Proforma Invoice vs Invoice – Key Differences
Proforma Invoice | Standard Invoice |
|---|---|
Estimate or quote | Legally binding bill |
Not used for tax | Used for tax/reporting |
No payment expected | Requests payment |
Used before delivery | Used after delivery |
Final Thoughts
A proforma invoice is a valuable tool when used correctly. It helps you communicate expectations, clarify costs, and prepare for international trade or services. Just remember — it’s not a replacement for an actual invoice.
Use it to quote smartly, stay transparent, and keep your paperwork professional.
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