Pro-forma Invoices - what are they and why do I need to pay it ?
Pro-forma invoices are sent out initially as we have been advised specifically by HMRC that as all our payments are due IN-ADVANCEof service provision, pro-forma is the correct accounting method.HMRC Published Guidelines (since 1970)
If you need to issue a sales document for goods or services you have not supplied yet you issue a pro-forma invoice.A pro-forma invoice IS a valid invoice requiring your payment.
A pro-forma invoice IS NOT a VAT invoice (you will receive one of those automatically on payment)Some Frequently Asked Questions / Clarifications about ProFormas
What is a Pro-Forma ?
A proforma is a request for payment in-advance of delivery of service/product.
Why is it different to an Invoice ?
One is a request for payment *before* delivery and one is for payment *with or after* delivery - but they are essentially the same thing.
Think of it like this ...
In a restaurant you pay for the food after eating (you are invoiced) but in a take-away you pay for the food before-hand (you recieve a pro-forma, which is immediately changed to a receipt when paid - a receipt is a form of paid invoice - although you may get both as separate documents)Why do we use Pro-forma Invoicing ?
- It is industry standard (as well as for most services/products mandated by the regulators) that payment is made in advance of provisioning the service/product.
- We have been specifically told by HMRC to use pro-forma invoicing.
- Additionally the use of pro-forma invoicing allows clients to maintain greater control and self-service capabilities, and enables automated cancelations (of both service and pro-forma) in the event it is no longer required.
- It reduces accounting requirements (by eliminating the need for credit-notes to cancel invoices)
- Use of pro-formas makes the services and products cheaper for you.
When do I get a VAT Invoice ?
You get a VAT Invoice immediately on payment by email, on-screen viewable in the Client Portal and downloadable by PDF through the 'My Finances' section of the Client Portal for all services/products and a further copy with the item if ordering physical products to be delivered.
My accountant says pro-formas are illegal ?
Quite simply, they're wrong.
If you need an accountant who understands accounting standards that are over 40 years old now please get in touch and I'm sure we can recommend a local one for you.My accounts-department is not allowed to pay pro-forma invoices ?
It may be your accounts-departments internal *policy*to try and gain credit where it is not permissable by attempting to not-pay a valid pro-forma invoice, but (unlike many claims we hear) it is not-illegal, or not-advised, or not-allowed.Can you send me an invoice instead ?
You will automatically get a VAT Invoice on confirmed payment of the pro-forma.What if I dont pay the pro-forma ?
Any existing service/product will stop working, and any newly ordered service/product will not be provisioned.
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