A quotation and a proforma invoice are often confused, but they serve different purposes in business. A quotation gives an estimated cost before any deal is signed, while a proforma invoice looks like an invoice but isn’t legally binding. These differences matter for accounting, customs, and financial planning.
Quick Fix Summary
Key Takeaway: Use a quotation to suggest pricing before you agree to anything. Use a proforma invoice to confirm terms before goods ship or services start. Neither counts as a final invoice, and neither should be paid.
What’s the difference between them?
A quotation is an offer you make to a potential buyer. It shows price, terms, and conditions—but it’s not a bill. A proforma invoice looks like a real invoice but is clearly marked as preliminary. According to the U.S. Commercial Service, businesses use proforma invoices in international trade to help buyers get import permits or arrange financing. Neither document replaces the final invoice you send after delivery.
When should I use a quotation?
Send a quotation when you’re still negotiating with a client. It helps them understand costs, timelines, and conditions before they commit. Quotations don’t go into your accounting system as revenue or expenses.
When should I use a proforma invoice?
Issue a proforma invoice once the buyer agrees to your terms but before you deliver anything. It helps them arrange payments or customs clearance, but it’s not a final bill.
How do I create a proforma invoice?
Follow this standard format:
- Start with a clear header: “PROFORMA INVOICE” so no one mistakes it for a final invoice.
- Add seller and buyer details—names, addresses, and contact info.
- Include a unique reference number like “PRO-2026-001.”
- List the goods or services with quantities, unit prices, and totals.
- State payment terms, delivery timeline, and how long the offer lasts (usually 30–90 days).
- Add shipping details if needed, like FOB (Free On Board) or CIF (Cost, Insurance, and Freight).
- Make it clear this is preliminary: “This is a proforma invoice and not a final invoice.”
- Include a disclaimer: “This is a proforma invoice and not a demand for payment.”
Can you show me an example?
Here’s a typical proforma invoice structure:
| Field | Content |
|---|---|
| Document Type | PROFORMA INVOICE |
| Invoice Number | PRO-2026-001 |
| Date | 2026-05-15 |
| Seller | ABC Imports, 123 Trade St, New York, NY 10001 |
| Buyer | XYZ Retail, 456 Market Ave, Chicago, IL 60601 |
| Description | Organic Cotton T-Shirts, 100 units @ $12.50/unit |
| Total Amount | $1,250.00 USD |
| Payment Terms | Net 30 days from shipment |
| Valid Until | 2026-08-14 |
| Notes | This is a proforma invoice and not a final invoice. No payment is due until receipt of final invoice post-delivery. |
What if someone tries to pay a proforma invoice?
If confusion happens:
- Look at the header: Any document labeled “Proforma Invoice” shouldn’t be paid. The final invoice arrives after delivery.
- Check the payment terms: Proforma invoices often say “No payment required” or “For customs purposes only.” Quotations usually include “Subject to change.”
- Talk to accounting: Proforma invoices aren’t recorded as revenue or expenses. If your system tries to post one, mark it as non-posting.
How can I prevent mix-ups in the future?
Keep these tips in mind:
- Label everything clearly: Use “QUOTATION” or “PROFORMA INVOICE” at the top of each document.
- Set an archiving policy: Store proforma invoices for 3–7 years (per IRS guidelines), but don’t use them for tax reporting.
- Train your teams: Make sure sales, accounting, and logistics all know the difference to avoid misclassification.
- Use templates: Standardized templates with clear disclaimers cut down on confusion.
(Honestly, this is the best way to keep things straight.) Remember: A quotation starts the conversation. A proforma invoice confirms the plan—but neither is a bill.
