What’s the difference between a proforma invoice, invoice, and receipt?

Accounts Receivable teams often deal with proforma invoice, invoice, and receipts. These are all important documents used in buying and selling goods and services. Each serves a unique purpose and plays a different role in the transaction.

Here’s a breakdown of each so you can know what to use and when.

What is a pro forma invoice?

A pro forma invoice is a document that provides an estimated cost for goods or services to help buyers decide whether or not to place an order with the supplier.

Compared to a price quotation, requesting a pro forma invoice signifies a serious commitment by the buyer to purchase goods and services, as the document includes details that the buyer may want to review before agreeing to purchase with the seller.

What to remember:

1. A proforma invoice includes information typically found in an invoice, such as item description, quantity, unit price, total amount, and payment terms. It may also include additional information such as shipping fees, taxes, discounts, and applicable surcharges.
2. However, pro forma invoices are not legally binding documents and do not include an invoice number.
   
3. They help provide an accurate price estimate to the buyer before the decision to purchase.
4. A proforma invoice may be treated as a preliminary bill of sale for customs purposes in international trade.

In addition, pro forma invoices can be used for budgeting and forecasting, as they provide an estimated cost for goods or services. They also help reduce misunderstandings or disputes over the final invoice since the buyer can review all invoice details (except invoice number) before the purchase order.

What is an invoice?

An invoice, on the other hand, is a formal document sent to a buyer by a seller that lists the products and services they have purchased, along with the agreed upon prices. An invoice serves as a request for payment and is a legally binding document. Sellers usually send invoices and follw-up reminders automatically through an accounts receivable software.

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It includes all the same information as a pro forma invoice, but also includes additional details such as the invoice number, terms of payment, and any relevant taxes. Invoices are  important for keeping accurate records of transactions and managing accounts payable and receivable.

What to remember:

1. An invoice is an accounting document and recorded in your accounts receivable books.
   
2. An invoice is a legally-binding document that serves as request for payment. It’s important to review an invoice carefully before sending it out, as it can have legal and financial implications if not done correctly.
3. The invoice is also used to calculate taxes, duties that may be due, and any other fees or charges related to the transaction.
4. An invoice is also used in audt inspections.

What is a receipt?

A receipt is a document that serves as proof of payment. It typically includes details such as the product or service purchased, the date and time of purchase, quantity, item price, applicable taxes and fees, and payment method. Receipts are often printed out at the time of sale or sent via email to confirm an online payments. Businesses may also refer to receipts as proof of purchase when issuing refunds or providing customer support.

What to remember:

1. Receipts can come in many forms and formats, including paper receipts, digital receipts sent via email or text message, or even electronic receipts stored in a smartphone app.
2. Businesses also commonly use receipts as part of their accounting and bookkeeping processes.
3. They serve as proof of expenses for tax deductions or income reports and can be used when audited by government agencies.

What is the difference between a pro forma invoice, invoice, and receipt?

An invoice is a commercial document issued by a seller to the buyer, indicating the products, quantities, and agreed prices for products or services. A pro forma invoice is sent in advance of the commercial invoice. It is a preliminary invoice that estimates the final cost of a sale. A receipt is a document that serves as evidence of payment made by the buyer to the seller.

Here’s a table illustrating the differences between the three documents:

Cut down the time chasing invoices

When managing invoices, the time and effort of chasing late payments can drain resources.

Fortunately, there are ways to reduce the time spent chasing late payments. Accounts receivable automation is key – setting up processes that automate invoice management, from monitoring outstanding invoices to payment reconciliation. It can help speed up the entire cycle and ensure that all stakeholders are informed of any delays or issues.

With ezyCollect, you can take complete control of your outstanding invoices and start getting paid on time. Please speak with one of our payments experts today to learn about options for your business.