Invoice vs. Proforma Invoice: What's the Difference?

As a consultant, you know invoicing is essential to your business. But why is it important for consultants to know the difference between commercial and proforma invoices? A few reasons why it’s important to know the difference between commercial and proforma invoices are:

• To avoid legal problems.
• To get paid on time.
• To secure financing.

If you’re a consultant, you should take the time to learn the difference between business invoices and proforma invoices. You should also ensure you are using the right type of invoice for the situation. So read on to learn more.

What is an invoice?

An invoice is a document used to request payment for goods or services already provided. Invoices are legally binding documents, meaning they can be used to enforce payment if the customer does not pay. This is why it’s important to ensure your invoices are accurate and complete.

When creating a business invoice, including all of the necessary information is crucial. This includes the following:

• Your business name and logo, address, and contact information
• The recipient’s name, business name, and contact information
• The issue date of the invoice
• An itemized list of the goods or services provided
• A list of other costs included in the final total
• Any relevant discounts
• The total price of the transaction
• The payment due date
• Your bank details

What is a proforma invoice?

A proforma invoice is a document used to estimate the cost of goods or services provided in the future. It is not a legally binding document, but it can be used to secure payment or financing before the goods or services are delivered.

Proforma invoices typically include the same information as invoices, but they may also include additional information like payment terms, delivery date, and shipping costs.

Here are some of the information that should be included in a proforma invoice:

• Your business name and logo, address, and contact information
• The recipient’s name, business name, and contact information
• The issue date of the proforma invoice
• The “valid till” date
• An itemized list of the goods or services you agree to provide
• The shipping method(s) that will be used
• A breakdown of taxes, shipping costs, late payment costs, and any other costs included in the final price
• The total price of the transaction
• For international invoices, include the purchase currency

Difference between Proforma Invoice and Invoice

When should you use an invoice?

Here are some common situations when commercial invoices are used:

• E-commerce vendors: After shipping their products, e-commerce vendors will send an invoice to the customer to request payment. This is a way for the vendor to confirm that the goods have been delivered and to request payment for the purchase.
• Freelancers: Freelancers will typically send an invoice to their clients either after they have confirmed that they will take on a job or after delivering the service. This is a way for the freelancer to confirm the scope of work and request payment for the services provided.
• Small businesses: Small businesses may use business invoices to request payment from their clients for goods or services. This is a way for the small business to confirm the sale and request payment for the goods or services delivered.

It is important to send business invoices promptly after the goods or services have been delivered or completed to ensure payment is received promptly. Invoices can be sent either with the shipment of goods to record the inventory or separately.

When should you use a proforma invoice?

Here are some everyday situations when proforma invoices may be used:

• When a potential customer requests prices or a list of products and services: By sending a proforma invoice, you can avoid misunderstandings and ensure that everyone is clear on what is and is not included in the sales agreement and the total price.

For example, if a customer asks for a price quote for a product, you can send them a proforma invoice that includes the product price, shipping costs, and any other applicable fees. This will help ensure no surprises when the customer receives the invoice for the final sale.

• To show commitment to delivering the goods or services: Asking for a proforma invoice is a way for a potential customer to show that they are serious about buying from you and for you to show your commitment to delivering these goods and services.

For example, if you are bidding on a government contract, the government agency may ask you to provide a proforma invoice as part of your bid. This shows that you are serious about the contract and that you have a good understanding of the costs involved.

• To provide a good faith estimate of the costs: A proforma invoice can provide the other party with an estimate of the costs involved in the transaction, which can help them decide whether or not to complete the purchase.

For example, if you are working on a project with a tight budget, you may want to provide your client with a proforma invoice that estimates the project’s total cost. This will help them to decide whether or not they can afford the project and make sure that they have enough money set aside to cover the costs.

Conclusion:

Proforma invoices and invoices are vital documents for consultants to use, but they serve different purposes. Proforma invoices are used to estimate the cost of goods or services that will be provided in the future, while invoices are used to request payment for goods or services that have already been provided. It is important to use the right type of invoice for the situation and to ensure all necessary information is included.

By understanding the difference between proforma invoices and invoices, consultants can avoid legal problems, get paid on time, and secure financing.

Does your consulting business receive international payments?

In addition to managing invoices effectively, your consulting business should consider its payment methods carefully. If you receive international payments, you should use a payment platform designed for Indians receiving international payments.

Winvesta is a great option for Indian consultants who receive international payments. You’ll get a local US, UK, European or Canadian bank account with its virtual multi-currency accounts. You can easily add your bank account to your invoice and get paid like a local. You can receive payments from 180 countries in 37+ currencies. Withdraw your money to INR in as little as 1 day at rates starting at 0.99%.

So open their Winvesta account today!