Proforma vs invoice:
which do you need?

A proforma invoice looks like an invoice, carries prices, totals and sometimes VAT, and asks for money. But it is not an invoice in the sense that matters for your accounts or for VAT. It is an advance bill, used when you want payment before you supply. Understanding the difference stops a common mistake: treating a proforma as income, or a customer trying to reclaim VAT from one.

The difference in one table

What a proforma is for

VAT Notice 700 describes proformas as often used to offer goods or services to potential customers: the offer may or may not be taken up, and the goods or services will not be supplied unless payment is received. In practice, businesses use them to:

• ask a new customer to pay before work starts or goods ship
• give a customer's finance team a document to raise a payment or approve a budget
• show an overseas buyer the value of goods for customs or import arrangements, before a final commercial invoice
• confirm the price of a large order before the customer commits

A proforma is close to a quotation in effect: both set out a price in advance. The difference is that a proforma is usually laid out like an invoice and asks for payment, where a quote only offers a price. The guide on quote vs estimate covers quotes.

What to put on a proforma

A proforma has no legal content requirements, but a clear one mirrors the invoice that will follow:

• the heading "Proforma invoice" and the words "This is not a VAT invoice"
• its own reference number, from a proforma series
• your details and the customer's details
• a description of the goods or services, quantities and prices
• VAT, if you are registered, shown for information
• the total to pay and how to pay
• how long the offer or prices stand

When the proforma turns into an invoice

Once you supply the goods or services, or receive payment, the proforma has done its job. If you are VAT registered, VAT Notice 700 says you must then issue a proper VAT invoice. If you are not registered, issue your normal invoice. Either way, the invoice takes the next number in your invoice sequence and refers to the proforma it follows, so the customer can match the two.

If the customer paid in advance against the proforma, the invoice shows the amount paid and a nil balance, or any balance still due. It is the invoice, not the proforma, that goes into your income records and, for VAT, your VAT account.

If the proforma is never taken up

Nothing needs to happen. Because a proforma is not an invoice, there is no income to reverse, no VAT to adjust and no credit note to issue. Keep it on file with a note that the offer lapsed. This is the main reason to keep proformas out of your invoice number sequence: a lapsed proforma numbered as an invoice would leave a gap to explain. The guide on invoice numbering covers separate series, and the invoice number generator can set one up.

A worked example

A furniture maker receives an enquiry from a new café for eight bespoke tables at £450 each. She is VAT registered. She sends proforma PRO-0031: eight tables, £3,600 net, £720 VAT, £4,320 total, "This is not a VAT invoice", payment required before production, prices valid for 30 days. The café pays £4,320 two weeks later. She starts production and, on receiving payment, issues VAT invoice INV-0207: the same lines, marked "Paid in full on 12 May, ref PRO-0031". The café reclaims the £720 VAT using INV-0207, not the proforma. Her VAT return includes the sale from the VAT invoice. The VAT calculator checks the VAT figures.

Mistakes to avoid

• Recording a proforma as a sale. It is not income until you supply or are paid and invoice. Counting proformas inflates your turnover and can even push you over the VAT threshold on paper.
• Numbering proformas as invoices. A lapsed proforma then leaves a gap in your invoice sequence.
• Leaving off "this is not a VAT invoice". A customer's accounts team may try to reclaim VAT from it, which HMRC will not accept.
• Forgetting the real invoice. If the customer pays against a proforma and you never issue the invoice, your records show money with no sale behind it, and a VAT-registered customer has nothing to reclaim from.
• Letting prices stand forever. State how long the proforma's prices are valid.

Proformas and cash flow

For a small business, the main value of a proforma is getting paid before committing money: buying materials for bespoke work, booking time for a large project, or shipping goods to a customer you do not yet know. Asking for payment against a proforma is a normal request, particularly from new customers, and most accept it. The alternative, supplying first on 30-day terms, puts all the risk on you. Once a customer has a track record of paying on time, you can move them to ordinary invoicing and payment terms.

Proformas in international trade

In cross-border trade, a proforma often does extra work. A buyer may need one to arrange payment, obtain an import licence or open a letter of credit, and customs agents may use it to prepare for the shipment. The details should therefore match the final paperwork closely: the same description of the goods, quantities, values and currency. When the goods ship, the commercial invoice and your sales invoice take over. If you invoice in another currency, see invoicing in a foreign currency.

Proforma or deposit invoice?

For a partial advance payment, many businesses issue a deposit invoice rather than a proforma: a real invoice for the deposit amount, with the balance invoiced later. For a VAT-registered business, receiving a payment in advance usually creates a tax point for that amount anyway, so a VAT invoice for the deposit is often the tidier route. A proforma suits the case where nothing is confirmed until the customer pays; a deposit invoice suits an agreed job where you want part up front. Stage payments extend the same idea across a longer project.

If you are not VAT registered

The VAT rules around proformas matter less, but the principle holds. A proforma is still an advance request, not a sale, so it stays out of your income until you supply or are paid. Leave VAT off it entirely, as you would on any document, and issue your ordinary invoice when the work is done or the money arrives. Adding "this is not an invoice" or "proforma" at the top keeps the customer's records straight. Your invoices, not your proformas, are what go into your tax return and the records you keep; see what a UK invoice must include.

Common questions

Can I chase a proforma if it is not paid? A proforma is not a debt for a supply you have made, so there is nothing to chase in the late payment sense. Follow up as you would a quote: ask whether the customer wants to go ahead.

Can a customer pay a proforma and then cancel? That depends on your terms. If you have not supplied anything, refund the payment. If you had already issued a VAT invoice on receiving payment, cancel it with a credit note; see how to cancel an invoice.

Do I need a due date on a proforma? It helps to say how long the prices stand and when payment is needed to start. The invoice due date calculator can set a date.

Is a proforma used for exports? Often, to show a buyer and their customs broker the value of goods before shipping. The final shipping paperwork is the commercial invoice.

The short version

Use a proforma to ask for money before you supply, mark it clearly as not a VAT invoice, and number it separately. When you supply or are paid, issue the real invoice. Your accounts, your VAT return and your customer's VAT reclaim all work from the invoice, never the proforma. For the definition, see proforma invoice, and for how an invoice differs from a receipt, see invoice vs receipt.