What Is a Proforma Invoice? A Plain English Guide for Australian Small Business
Not Quite an Invoice, Not Quite a Quote
A proforma invoice sits in an interesting middle ground. It looks like a real invoice, it has all the same information as a real invoice, but it isn’t one. Understanding what it is, when to use it, and what it can’t do will save you some confusion, and possibly some awkward conversations with customers or your accountant.
What Is a Proforma Invoice?
A proforma invoice is a preliminary bill sent to a customer before goods or services are delivered. The word “proforma” comes from Latin, meaning “as a matter of form.” It’s a statement of intent: here’s what we’re going to deliver, here’s what it’s going to cost.
Unlike a tax invoice (the official document you issue when a sale is complete), a proforma invoice:
- Does not create a legal obligation for the customer to pay
- Cannot be used by your customer to claim a GST credit
- Is not a record of completed sale in your accounting system
- Should be clearly marked “PROFORMA INVOICE” to avoid confusion
Think of it as a detailed quote in invoice format, or a preview of the real invoice that will come once the job is done.
When Do Australian Small Businesses Use Them?
Upfront payment requests. If you need a deposit before starting work, a proforma invoice gives the customer something formal to pay against. A tradie quoting a $12,000 renovation might send a proforma for the 30% deposit before ordering materials. The real invoice follows once the work is complete.
International shipments. Proforma invoices are common in export documentation. Customs authorities use them to assess duties and taxes before goods cross a border. If you’re exporting Australian products, you’ll likely need a proforma invoice as part of the paperwork before the shipment leaves.
Internal approvals. Some organisations require finance sign-off before committing to a purchase. A proforma gives the approver something official-looking to review, without the supplier having to wait and wonder if the order is confirmed.
Quotes for larger B2B jobs. When a customer needs to budget or get board approval before proceeding, a proforma is often more useful than a casual email quote. It looks serious without locking either party in.
Proforma vs. Tax Invoice: The Key Difference
This is where small business owners sometimes come unstuck.
Under Australian tax law, a valid tax invoice is required for your customer to claim a GST input tax credit on purchases over $82.50 (including GST). A proforma invoice does not qualify. If you issue a proforma and your customer tries to use it to claim GST credits, the ATO won’t accept it.
A compliant tax invoice in Australia must include:
- The words “Tax Invoice”
- Your business name and ABN
- The date of issue
- A description of what was sold
- The GST amount, or a statement that the price includes GST
Once the sale is confirmed and the goods or services are delivered, issue the real tax invoice. Don’t let the proforma do the work of a tax invoice. It’s the wrong tool for that job.
Practical Tips for Using Proforma Invoices
Label them clearly. The document must say “PROFORMA INVOICE” at the top, not just “Invoice.” This isn’t just good practice, it avoids your customer accidentally booking it as a payable in their own accounting system.
Set a validity period. A proforma isn’t a fixed price promise forever. Include a line like “Valid for 30 days from date of issue” so you’re not locked into prices if materials costs shift.
Follow up with the real invoice promptly. The proforma is a placeholder. Once work is done or goods are shipped, issue the actual tax invoice quickly. Late invoicing is one of the most common causes of late payment for small businesses.
Most accounting software, including Xero, MYOB, and QuickBooks, can generate proforma invoices. In Xero, for example, they appear as “Quotes” that can be converted to an invoice once accepted. Some businesses set up a custom template marked “PROFORMA INVOICE” to use at that stage.
One Honest Take
Proforma invoices are useful, but they’re often misused. The most common problem is issuing one and then forgetting to follow up with a real tax invoice after the work is done. The customer has paid, the job is complete, but there’s no proper record in your system. That creates headaches at tax time. If you use proformas regularly, set a reminder to convert them as soon as the job closes.
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