Pro Forma Invoice
Discussion
Its an invoice you send out before goods or services are delivered. Usually used to get payment before the services / goods are delivered. An important point in the UK is that a proforma invoice is not a VAT invoice and the VAT number should not be shown. We have "This Is Not A VAT Invoice" in large letters on ours. The client should be sent a full VAT invoice after the goods / service have been delivered.
Thanks, just about got it sussed now 
Yes it should.
They are a bit of a con really. If VAT didn't exist, Pro-Forma invoices wouldn't exist either.
Before VAT was invented, the assumed legal situation was that a Sale Invoice was raised which then placed a contractual obligation on your customer to pay you the amount shown on the invoice. At that point, the Sales Invoice was entered in your book-keeping system - properly recording the fact that a sale had occured and properly recording the fact that a new debt (money owed by a customer) had been created.
When VAT came along in 1973, the VAT authorities assumed that this standard approach would continue as the normal way of generating and recording sales and the resultant debtors in a book-keeping system. Sage and other similar computer suystems expect businesses to generate sales in this manner as well.
However, once a Sales Invoice is raised, VAT is due and payable on that invoice, even if it hasn't yet been paid (unless the business is on the VAT Cash Accounting system).
In order to defer the paying of the VAT on unpaid debts, many businesses now prepare a "Pro-Forma" invoice which generates the Debt but not the Sale.
Sage and other systems do not really cope very wellwith this. The only way to ensure that VAT is not due and payable is to raise the Pro-Forma invoice as a separate exercise, print it out and send it to the customer but do not process a full invoice on the Sage system.
This gets around the VAT problem but dues rather reduce Sage's ability to monitor and control your debts as it can only produce meaningful debtors listings when genuine Sales invoices are processed and the invoices debited to the relevant customers' sales ledger accounts.
They are a bit of a con really. If VAT didn't exist, Pro-Forma invoices wouldn't exist either.
Before VAT was invented, the assumed legal situation was that a Sale Invoice was raised which then placed a contractual obligation on your customer to pay you the amount shown on the invoice. At that point, the Sales Invoice was entered in your book-keeping system - properly recording the fact that a sale had occured and properly recording the fact that a new debt (money owed by a customer) had been created.
When VAT came along in 1973, the VAT authorities assumed that this standard approach would continue as the normal way of generating and recording sales and the resultant debtors in a book-keeping system. Sage and other similar computer suystems expect businesses to generate sales in this manner as well.
However, once a Sales Invoice is raised, VAT is due and payable on that invoice, even if it hasn't yet been paid (unless the business is on the VAT Cash Accounting system).
In order to defer the paying of the VAT on unpaid debts, many businesses now prepare a "Pro-Forma" invoice which generates the Debt but not the Sale.
Sage and other systems do not really cope very wellwith this. The only way to ensure that VAT is not due and payable is to raise the Pro-Forma invoice as a separate exercise, print it out and send it to the customer but do not process a full invoice on the Sage system.
This gets around the VAT problem but dues rather reduce Sage's ability to monitor and control your debts as it can only produce meaningful debtors listings when genuine Sales invoices are processed and the invoices debited to the relevant customers' sales ledger accounts.
How can Sage be used as a proper book-keeping system and how can you review your aged Trade Debtors if you are delaying the issue of genuine invoices until the point the "Pro-Forma " has actually been paid?
Also, does this not mean that your are not booking sales properly onto your accounting sysytem until the sales are paid?
How do you propose to account for unpaid "Pro-Forma" sales invoices at the accounting year end date?
Also, does this not mean that your are not booking sales properly onto your accounting sysytem until the sales are paid?
How do you propose to account for unpaid "Pro-Forma" sales invoices at the accounting year end date?
Simpo Two said:
If the object of a Pro Forma invoice is to get the money up front, why not just send them a real invoice?
Because then you would have to pay the VAT. You may be delivering the service in a diffrent VAT quater. The tax point for the customer to recover VAT is on delivery on the standard scheme. Its acutally more complex than that but that is what it boils down to.plasticpig said:
Simpo Two said:
If the object of a Pro Forma invoice is to get the money up front, why not just send them a real invoice?
Because then you would have to pay the VAT. You may be delivering the service in a diffrent VAT quater. The tax point for the customer to recover VAT is on delivery on the standard scheme. Its acutally more complex than that but that is what it boils down to.Gassing Station | Business | Top of Page | What's New | My Stuff