What is Pro Forma?
Pro forma refers to a method of presenting financial information based on assumptions or projections, most commonly seen in pro forma invoices and pro forma financial statements.
Pro forma (Latin for "as a matter of form") describes documents prepared using assumptions, projections, or estimates rather than actual completed transactions. In everyday business the term appears most often in pro forma invoices, but it also applies to financial statements and budgets.
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 will look like, including descriptions, quantities, and prices, but it is not a demand for payment 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 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.
Examples
A manufacturer sends a pro forma invoice to an overseas buyer so they can arrange a letter of credit
A startup prepares pro forma financial statements projecting three years of revenue for investors
A tradesperson sends a pro forma to a new client requesting 50% deposit before starting a kitchen fit-out
Related Terms
Proforma Invoice
A proforma invoice is a preliminary bill sent before goods are delivered or services are completed, showing the estimated costs and terms.
Invoice
An invoice is a commercial document issued by a seller to a buyer, listing the products or services provided and requesting payment.
Purchase Order
A purchase order (PO) is a commercial document issued by a buyer to a seller, authorizing a purchase and specifying the items, quantities, and agreed prices.