A pro forma invoice is a special type of invoice that does not trigger a payment obligation for the recipient, but is more similar in effect to an order confirmation. It serves as proof of the value of goods.
Use of a pro forma invoice in international trade
The pro forma invoice is used particularly frequently for transactions with countries outside the EU's own economic area. When exporting goods to non-EU countries such as Switzerland or Norway, it is essential to submit such an invoice to customs. It is required regardless of whether a fee is charged for the goods or whether the goods are sent free of charge, e.g. as a sample. The value of the goods stated in the pro forma invoice is decisive for the customs valuation of the consignment.
ImportantCustoms clearance requires one original and three copies of the pro forma invoice.
Commercial invoice vs. pro forma invoice
The classic invoice is therefore a document with a request for payment, while the pro forma invoice is a document without a request for payment in order to be able to credibly demonstrate the value of goods to customs or the responsible tax authority.
Structure and content
Although not explicitly stipulated by law, certain information should not be missing from a pro forma invoice:
- Clearly labelled as a pro forma invoice
- Details of sender and recipient
- Details of the type, nature, weight and number of goods
- Value of goods
- Information on packaging units
- Indications of origin
- Delivery conditions
- Bank details
In certain cases, a pro forma invoice can follow a simplified scheme. Within domestic transport, for example, the proof of origin can be omitted. The regular copy A/R Invoice can be converted into a pro forma invoice by changing the designation.
ImportantA pro forma invoice may not function as a final invoice or be subsequently converted into one. A commercial invoice must be issued for actual requests for payment.
Wide range of applications for pro forma invoicing
The pro forma invoice can be used in a variety of ways, often for tax purposes, in particular for:
- Proof of value for customs
- Free deliveries abroad
- Transactions with prepayment
- Dispatch of samples
- Exchange of goods, e.g. in warranty cases
- Spare parts deliveries
- Donations
- Opening of letter of credit
In some countries, the pro forma invoice is also considered a binding offer. In Germany, on the other hand, it can also be sent as an order confirmation.
Role in financial accounting
In the accounting provisions or accruals are recognised for invoices not yet received prior to the annual financial statements. These allow the expected invoices for the past period to be allocated correctly and ensure that expenses and income are recognised in the correct period. When the actual invoice is received, the corresponding provisions or accruals are adjusted. This is an important instrument for ensuring the accuracy of the annual financial statements, similar to the function of an internal document in the absence of external receipts.
Advance Invoice
An advance invoice is also issued before the delivery of goods or the provision of services, with the difference that it is usually a request for payment. If a customer makes an advance payment, this advance invoice is used as proof of payment and is replaced by a final invoice upon delivery or provision of the service. The advance invoice thus serves as the basis for an advance payment and is treated accordingly in accounting.
- Key points of a down payment invoice:
- Serves as a request for advance payment.
- Will be replaced by a final invoice.
- Recognised as a down payment in accounting.
The main difference between a pro forma invoice and an advance invoice lies in their function and their accounting treatment. The pro forma invoice is a provisional, non-binding document that is mainly used for information purposes, whereas the advance invoice is a specific request for payment and is treated as such in the accounts.
Pro forma invoice in SAP Business One
In SAP Business One, the creation of such a document is made possible by the intelligent use of existing objects such as quotations or orders. These objects, which can be used without having a direct impact on financial accounting, serve as the basis for a pro forma invoice in SAP Business One. This means that no separate module or special software extension is required to create a pro forma invoice.
The core of this flexibility lies in the separation of layout and object. This separation makes it possible to design the external appearance of a document independently of its core content. By taking an existing object, such as an offer, as a basis and adapting its layout to fulfil the specific requirements of a pro forma invoice, a versatile document is created.
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