What is a proforma invoice?
A proforma invoice is a quotation in invoice format — it commits the seller to terms but creates no tax liability and no payable.
A proforma invoice looks like an invoice but is not one. It is issued before the sale, to tell the buyer exactly what they will be charged for and on what terms.
Proforma vs tax invoice
| Proforma invoice | Tax invoice | |
|---|---|---|
| Issued | Before supply | On or after supply |
| Creates GST liability | No | Yes |
| Creates a payable | No | Yes |
| Buyer can claim input credit | No | Yes |
| Binding | On the seller, as an offer | As a debt |
Because it creates no GST liability, a proforma invoice is safe to issue while a deal is still being agreed. Because it is formatted like an invoice, the buyer can take it into an internal approval process and raise a purchase order against it.
What it is used for
- Getting internal budget approval on the buyer's side
- Opening a letter of credit, which requires the terms in writing
- Customs and import documentation for advance clearance
- Requesting an advance payment before production starts
What people get wrong
Treating it as a tax invoice. Input tax credit cannot be claimed on a proforma. The tax invoice must follow.
Leaving validity off. A proforma without an expiry is an open-ended price commitment, which hurts in a volatile input market.
Omitting HSN codes and tax breakdown. The buyer needs them to check landed cost, and a proforma that hides tax invites a dispute at invoicing.
On Bidancer
Commercial documents stay between the two businesses — Bidancer hosts the engagement rather than the paperwork. What it contributes is that both parties are verified before documents start moving.
Performance Bank Guarantee (PBG)
A PBG is a bank's promise to pay the buyer if the contractor fails to perform. How it works in Indian contracts, and how it differs from EMD.
Purchase order (PO)
A PO is the buyer's formal offer to buy on stated terms. When it becomes a contract, and what a good one must contain.