What is Pro Forma?

Pro forma means "as a matter of form". In business, it describes a document prepared in advance using expected, estimated, or assumed information rather than a completed transaction.

The most common example is a pro forma invoice. This looks like an invoice, but it is usually sent before goods are delivered or work is complete. It helps a client approve a purchase, arrange payment, or handle customs paperwork before the final invoice is issued.

Pro forma invoices: A pro forma invoice is a preliminary document sent before goods are shipped or services delivered. It shows what the final invoice is expected to look like, including descriptions, quantities, prices, and payment details, but it is not a valid tax invoice and cannot be used for VAT recovery.

• **Common uses in UK business:**
• Requesting deposits or pre-payment: before starting work
• Customs declarations: for international shipments (HMRC requires a pro forma for goods crossing borders)
• Internal budget approval: - clients circulate pro formas to get purchase sign-off
• Pro forma financial statements: - projections used in business plans, investor pitches, and scenario analysis

Pro forma vs invoice: A pro forma is a preview or estimate. A final invoice is the official payment and accounting document issued once the sale has happened or payment is due. If VAT applies, the VAT invoice must be the final invoice, not the pro forma.

Pro forma vs quotation: A quotation is a formal offer to supply at a stated price, which may be legally binding if accepted. A pro forma invoice is an indicative preview of the final invoice but is not contractually binding.

Important distinction: A pro forma invoice is not a valid tax invoice. Once the transaction is complete, you must issue a proper invoice for VAT and accounting purposes.