The proforma invoice is a preliminary document issued by a supplier before goods or services are delivered. A proforma invoice is a request for prepayment — either in full or partial.
The proforma invoice facilitates an advance payment, but not all advance payments need a proforma invoice, as some can be driven by a contractual agreement.
Understanding proforma invoices
Proforma invoices are available as a new document type under the existing Bill expense type. This means that all expense fields and workflows used for the Bill expense type are fully reused for proforma invoices.
Proforma invoices have the following key characteristics:
Do not affect tax, VAT, fixed assets, or the profit and loss statement.
Their purpose is to facilitate a prepayment, not to recognize an expense.
Are typically exported using a fixed General Ledger account designated for advances, which reflects that payment has been received before a final tax invoice is issued.
Can be linked to a tax invoice for the purpose of reducing the due amount of the tax invoice. In either case, the tax invoice and the proforma invoice remain two separate expenses.
When the tax invoice arrives, Payhawk attempts to automatically link it to any paid proforma invoice from the same supplier.
Matching proforma invoices
To link a proforma invoice to an invoice, the proforma must have a Paid status, otherwise, it will not appear in the available proforma list for linking.
To ensure efficient processing of tax invoices, Payhawk employs an automated matching process.
When a tax invoice is received, the system attempts to automatically match it to a corresponding proforma invoice based on the following criteria:
The supplier and currency must always match between the tax invoice and the proforma.
The invoice amount is a strong indicator for matching, though not strictly mandatory.
A reference to the proforma invoice on the tax invoice can aid in matching, but is not required.
The system compares items on both the proforma and the tax invoice to understand the goods or services provided, even with slight variations in descriptions.
If the automated matching process fails or the confidence level is low, users have the option to manually link the proforma and the tax invoice within the Payhawk Web Portal.
Workflows for proforma invoices
In terms of workflows, the complete bill workflow, including submission, approval, review, and payment, applies to proforma invoices as well.
If you’ve already prepaid an invoice via a proforma and don’t want to approve it again when the tax invoice arrives, you can set up a specific approval condition in the workflow.
There are two possible scenarios:
The proforma invoice has been used for full prepayment, thus the invoice payable amount is zero. In this case, the bill workflow can be configured to skip approval using the Amount due > 0 condition. In this case, the invoice goes through the following approval worfkflow - Submit > Review.
The proforma invoice has been used for partial prepayment, thus the tax invoice due amount is larger than zero. In this case, the invoice goes through the usual approval workflow for the remaining balance - Submit > Approve > Review > Pay.
Notes on proforma invoices
If an Employee uploads an invoice, it will only be matched to proformas that this Employee has access to. Payhawk Accountants and Administrators can still link invoices and proformas from different employees.
A proforma’s utilized amount tracks how much of the advance payment has been applied and stays open until fully consumed. In case the invoice comes in for a lower amount, the linked invoice must be credited (with a credit note), so that the amount is reduced to what the paid amount is.