What is a proforma invoice in the UK?

Running a business is hard for sure, but getting regular customers is harder. Not only you have to convince people to buy from you but also show them your willingness to offer the best deals. To make it possible, you will need a proforma invoice. What is a proforma invoice in the UK should be the first thought in your mind if you plan to do business there. 

Be it the UK, the US, or any other country, the features and impact of a proforma invoice remain the same. In this guide, you will learn the A to Z of a proforma invoice and the UK terms and conditions related to it. 

What is a proforma invoice in the UK? 

First, let’s learn what a proforma invoice is.  

A proforma invoice or preliminary bill is a preview of the required goods and their details delivered to a client. 

When a client plans to make a purchase, he wants to know the quantity, estimated price, and delivery timeline beforehand for a general idea. In response, the supplier enlists all the required information on a white paper and provides it to the client. This given paper is the proforma invoice. 

If the buyer is not satisfied with the provided details, he will start negotiating with the seller. When both of them mutually agree to each other’s conditions, they finalize the sale. 

The UK has no specific rules and regulations on proforma invoices because the invoice itself is not legal. As long as a UK-based seller or company is clear about the product details and prepares the proforma correctly, nothing big will happen. 

Proforma invoice example 

Suppose, you want to buy your monthly groceries online. You ask the seller what are the deals he offers for monthly groceries. The seller hands you a proforma invoice showing that you will get 12 types of items costing 1000 bucks with a 7-day delivery period.  

Now, you find two problems – 

• The deal is a little bit expensive. 
• You want groceries within 3 days. 

You ask the seller if he could reduce the package price and deliver them earlier. The seller also tries to respond to your request without violating his company rules and regulations. Finally, both of you agreed to a deal of 12 items costing 900 bucks with a 4-day delivery time. 

It was the proforma invoice that made the sales process smooth. Without it, after the delivery, you might lose your temper seeing the due, argue with your seller, and return the package. The seller would suffer too.

How to write a proforma invoice?  

A proforma invoice includes almost the same information as a final invoice. It mostly focuses on proposing the best deal to a customer. Here are the details of what information should be included in a proforma invoice – 

• Issue date and expiration date of the invoice. 
• The name of the seller’s company, its address, and contact details.
• Buyer’s name or his company’s name, his address, and contact details.
• The details of requested products, such as quantity, size, etc. 
• Estimated price of the products. If there is any discount, tax, shipping cost or other fee, the seller can calculate them and show it to the customer for a better understanding.  
• Estimated place for delivery. 
• Billing address of the seller. 
• The labels ‘proforma invoice’ and ‘not a tax document’ at the end of the document. It is the most important feature.  

When and why to use a proforma invoice? 

The reasons to use a proforma invoice spontaneously answer when to use it and vice versa. Read these paragraphs to learn more on this topic.

To convince the client  

The client is planning or has agreed to make a purchase, but still requires more information before spending the money. To convince him, the supplier prepares a proforma invoice showing what the latter is willing to offer to the former.  

To gain the trust of the buyer 

Once the seller provides a proforma to the buyer, negotiation starts. If the seller successfully meets the buyer’s expectations and gains his trust, the buyer will proceed to the final sale. Also, the buyer might meet the specific seller again in the future. 

To perform a seamless international trading 

International trading includes shipping fees, tax fees, customs fees, legal documents, and more of the required items. With a well-organized proforma invoice, export companies can do business smoothly. 

To state the actual value of items 

The value of items may differ from country to country. The preliminary bill helps international traders to understand whether their shipments were a win or a loss. 

To accelerate the business 

The preliminary bill helps clients to be clear about the product price, quantity, and delivery time before getting the actual product. As a result, it saves the buyer from making delivery delays, extra admin work, and compensations. 

Who can use a proforma invoice? 

Be it a P2P, P2C, or B2B, local or international, proformas are usable in every type of business. 

Compared to other types of business, a proforma invoice comes more handy in international shipments. Because passing customs is a hard nut to crack. Preview of the details of the shipped items, their estimated costs, and required fees makes inspecting the goods and claiming the duties easy for customs. 

Pros and cons of proforma invoice 

Since a proforma invoice clears confusion and eases transactions, it is indeed helpful. However, you cannot ignore its downsides at all. The next sections will elaborate on the pros and cons of the preliminary bill. 

Pros of proforma invoice 

• It helps to create a good rapport between the buyer and the seller. Because both parties clearly know about the goods, the payable amount, and the delivery time in advance. As a result, they aim to fulfill each other’s expectations. 
• As a proforma invoice builds transparency in trading, it helps the seller or company owner to reach their long-term business goals.
• The customer can negotiate, which leads to meeting his budget. 
• Along with the payable amount, the seller can mention his expected method to receive the due. As a result, the customer does not waste time in deciding which payment method to use. 
• A proforma invoice contains an expiration date. Consequently, the buyer can make a purchase decision anytime within the timeline. 
• This type of invoice has no legal binding. Therefore, both the sender and receiver won’t feel threatened if the purchase doesn’t occur. 

Cons of proforma invoice

• It does not include terms and conditions of sales, so the customer will be unaware of them. It can lead to further complications. 
• The absence of terms and conditions can heighten misunderstandings in international trading, causing a massive economic impact. 
• Since proformas don’t have sales tracking facilities, transactions become complicated. 
• Proformas don’t provide clear payable amounts including taxes and other hidden costs. This is why the proposed due and the actual due differ a lot. 
• Given that proformas lack legal binding, the seller cannot enforce the buyer for the payment. 
• Sometimes, customers mistake a proforma invoice as a sales invoice.

Is a proforma invoice different from other types of invoices? 

A proforma invoice differs from other types of invoice in terms of components, usage, characteristics, etc. For a better understanding, check this comparison table.   

Quotations or quotes are mostly similar to a proforma invoice. A proforma is actually a quote more organized. The differences are –

• Quotes are less formal and contain less details than proforma.  
• All proforma invoices are quotes but all quotes are not proforma invoices. 

Is proforma invoice legal?

No, it’s not. Because it does not contain invoice numbers, tracking codes, terms and conditions, and final transaction details. 

Also, proformas are not eligible to reclaim VAT. It is actually an agreement of good faith between the seller and the customer. 

Both parties know what is proposed or estimated on the white paper. With this, they negotiate to reach a common ground where their investments are worth the deal. Despite being not legal, a proforma invoice can make way for a legal business. 

To conclude 

Knowing the answer to what is a proforma invoice in the UK is not enough if it is not handled with care. If you want to make your first client a long-term one, use proforma invoice software to create an error-free preliminary bill. 

The flexibility of a proforma invoice creates a foundation in the sales process. Besides, transparent communication between the client and the supplier is also needed. Without a detailed discussion, a proforma invoice will lose its value.