Proforma Invoice: What Is It and How to Issue One?

Have you been asked to issue a proforma invoice but are not sure what it means? Or perhaps you would like to secure payment before receiving funds from a customer?

A proforma invoice (also referred to as an advance invoice or prepayment invoice) is a document issued to a customer before goods are delivered or services are provided.

Although it is not considered a formal accounting document under VAT regulations, it is widely used in practice as a basis for payment.

In this article, you will learn:

• what a proforma invoice is;
• when and why it is used;
• how to issue one correctly;
• how it should be treated for accounting purposes.

A proforma invoice is typically issued when a customer is required to pay for goods or services in advance. It provides assurance for the supplier while giving the buyer a document that outlines the details of the upcoming purchase.

Common Situations

• Advance payments for services, such as accounting services, IT solutions, consulting, or training;
• Product reservations, particularly when goods are manufactured or delivered after the order is placed;
• Contract-based orders that require partial or full prepayment before work begins or goods are supplied.

Example

A company places an order for the production of 500 units of goods. Before starting production, the supplier issues a proforma invoice for 50% of the order value as an advance payment request. This confirms the customer's commitment and allows the supplier to proceed with the order.

Although a proforma invoice is not a mandatory document under VAT legislation, it should still be clear, accurate, and informative for the customer.

A proforma invoice should include:

• The document title: Proforma Invoice;
• Invoice number and date;
• Buyer and seller details (company name, address, tax/VAT identification number);
• Description of goods or services, quantities, and prices;
• Total amount payable (often shown excluding VAT);
• Bank account details and payment reference information;
• A statement indicating that the document is not a VAT invoice.

Tip: If you use Rivile ERP, you can generate proforma invoices automatically using predefined templates and direct integration with the sales module, saving time and reducing the risk of errors.

Under the laws of the Republic of Lithuania, a proforma invoice is not considered an accounting document. Therefore:

• It is not reported in VAT declarations;
• A VAT liability arises only when payment is received or the service is provided;
• The actual VAT invoice must be issued later, upon the provision of the service or the delivery of the goods.

However, from an accounting perspective, advance payments must be recorded, making a proforma invoice an important supporting document, especially when partial or full prepayments are received from customers.

In practice, companies often use separate internal numbering sequences for proforma invoices, such as PI001, PI002, and so on, to distinguish them from regular invoices and maintain clear record-keeping.

Is a Proforma Invoice a Payment Document?

Yes. Although a proforma invoice is not a formal accounting document, it is commonly used as a basis for making a payment. It provides the customer with the necessary payment details and outlines the goods or services to be purchased.

Can a Proforma Invoice Be Used Instead of a VAT Invoice?

No. A proforma invoice cannot replace a VAT invoice. Once payment has been received, or when goods are delivered or services are provided, an official VAT invoice must be issued in accordance with applicable legal requirements.

When Should the Final Invoice Be Issued?

The final invoice should be issued when the service has been provided or the goods have been delivered. At that point, the invoice must include all information required for VAT and accounting purposes.

Rivile ERP is an intelligent business management system that makes it easy to issue proforma invoices, VAT invoices, and other types of invoices, track advance payments, and maintain accurate financial records. By automating invoicing and accounting processes, businesses can save time, reduce manual errors, and ensure efficient financial management.