What is the difference between a pro forma invoice and a standard invoice?
When it comes to running a business, there is so much to do.
You may be good at what you do and love your job, but unless you work with numbers (like me!) then it won’t make you an accounting wiz.
However, correctly handling the financials of your business is incredibly important.
It ensures that you get paid, that you get paid enough and that you have the funds to keep on going.
ssuing the correct invoice to customers is part of handling the financials.
One of the biggest questions I get when I work with new clients is “What is the difference between a pro forma invoice and a standard invoice?”
If you’re wondering the same thing, I hope this blog post answers your questions.
Standard invoice is a document sent from a seller to a customer detailing the products that will be provided, the timeframe in which they will be provided and the cost of the products. This invoice contains information already discussed and agreed upon by both the seller and the customer.
Standard invoices are used to record “accounts receivable” by a seller, which is in turn used for tax purposes. In order for both a seller and customer to be in line with HMRC regulations, it’s mandatory for a seller to voluntarily supply a standard invoice
Pro forma invoice
A pro forma invoice is oftentimes defined as a “preliminary bill of sale.” Basically, it’s the kind of invoice that you would send a customer if the complete details of a job are unclear. It acts more as an estimate or quote. Instead of being a true invoice, it typically only states the commitment of a seller to provide a certain product and an estimate of what the cost of the project will be.
When it comes to VAT, this type of invoice cannot be registered as an “accounts receivable” and therefore does not affect your VAT return. Somewhere on the pro forma invoice, it should clearly state “This is not a VAT invoice.”
However, a pro forma invoice is not the only invoice you will send your customer. After the customers sees the pro forma invoice and the details of the project are confirmed, you are required to send your customer a standard invoice which will then be used for VAT purposes.
It can be easy to confuse a standard and pro forma invoice, but they serve very different purposes.
The most important difference between the two is that standard invoices can be used for VAT purposes, while pro forma invoices cannot.
If you do provide customers with a pro forma invoice, be sure to follow it up with a correctly completed standard invoice and you will be following the HMRC’s rules and regulations.