In this guide 6 sections
A quotation offers a price and binds nobody until accepted. A proforma invoice previews the sale, letting a buyer pay in advance or clear customs. A tax invoice records the real sale. Stock, receivables and tax all move only then. Raise them in that order.
Three documents, three different jobs
A quotation answers one question: what will it cost? It lists items, quantity, rate, validity date and terms. The buyer can accept, haggle or walk away.
A proforma invoice answers a second question. What will I be billed? What must I pay first? It looks like an invoice but is not one, and it states the terms on which you intend to sell.
The tax invoice is the third document. It records a completed supply and carries your tax registration details, and your auditor and the buyer’s accounts team will both file it.
- Quotation: raised by sales, valid for a set period, no ledger entry
- Proforma invoice: raised by the coordinator after the order is confirmed, no sale recorded
- Tax invoice: raised by accounts at dispatch or delivery, posts to receivables and tax
- Each document keeps its own number series so they never get mixed up
What happens to stock and ledgers at each step
A quotation touches nothing. Stock stays free for other buyers. Some firms reserve stock against a quote. That is a choice.
A proforma invoice may reserve stock. It still posts no sales entry and no tax, so keep it out of your sales register and out of the receivables ageing report that finance reads each week.
A tax invoice does all the work. Stock is issued, the customer account is debited, tax is calculated and the sale joins your next return, so a mistake now costs a credit note later.
Advance payment before dispatch
Suppose a new buyer abroad refuses goods until money moves. You send a proforma invoice carrying the bank details, the item list, the Incoterm and the payment terms, and the buyer’s bank uses it to release funds.
Book the advance as a receipt against the customer. Never book it as a sale. It waits as an unadjusted advance until the tax invoice is raised, and then you set it against that invoice and collect only the balance still due.
This is where spreadsheets fail. Someone forgets the adjustment. The customer gets chased for money already paid.
- Proforma number, date and the order it belongs to
- Payment received, bank reference and date
- Balance due after the advance is adjusted
- Tax invoice number that finally closes the proforma
Customs and export paperwork
Customs offices often ask for a proforma or a commercial invoice to value the shipment, and which one applies depends on the route, the goods and the importing country. Ask your freight forwarder or customs broker.
Keep the goods description, tariff code, country of origin and unit values identical across the proforma, the packing list and the final invoice. One mismatch holds a container at the port.
Software helps here. It copies the data forward. Nobody retypes a code.
Set up the chain so nobody retypes anything
Trace one real order through all three documents. Mark every field that gets typed twice. Those are the places where errors creep in.
Then pick a tool that converts a quotation into a proforma, and a proforma into a tax invoice, while keeping the numbers linked. Ask whether cancelling a quotation releases the stock reserved against it, and whether the quotation number can ever be reused.
Test it with one awkward order: a part payment, a changed quantity, a second delivery address and a late tax rate change. Pass that, and the rest is easy.
Quotation, proforma and invoice comparison sheet
A one-page table. Three columns cover quotation, proforma invoice and tax invoice. Rows cover purpose, who raises it, validity, stock effect, ledger effect, tax effect, advance handling and the customs fields to repeat. A blank row at the bottom records your own number series and who approves each document before it leaves.
Open a blank worksheet to printQuestions owners ask
Is a proforma invoice a legal demand for payment?
Usually not. It states the terms on which you will sell, while the tax invoice records the sale itself and carries the legal weight. Rules differ by country. Ask your accountant.
Can I skip the proforma and invoice directly?
Yes. Do it when the buyer pays on credit and no bank or customs office wants a preview of the bill. The proforma earns its place when money must arrive first.
Should the proforma and tax invoice numbers match?
No. Keep separate series, so the proforma never reaches the sales register, the tax return, the receivables ageing, the quarterly review or any auditor’s sample of invoices. Link them by reference.
What if the final quantity differs from the proforma?
Invoice what shipped. Note the proforma it replaces, set the advance against the new total, and then refund or collect the difference that remains.