Proforma Invoice vs Quotation: What's the Difference?

Key takeaways

• A quotation offers a price while the buyer is still deciding; a proforma invoice confirms the agreed terms after the buyer says yes, usually to request an advance.
• Neither is a tax invoice, so neither creates GST liability or input tax credit on its own.
• When a services advance arrives against a proforma, you issue a receipt voucher; the later tax invoice adjusts any advance received.
• Exporters use the proforma to open letters of credit and collect advances; customs clears goods on the shipping bill and commercial invoice.

A quotation is a price offer you send while the buyer is still comparing options, while a proforma invoice is an invoice-style confirmation of agreed terms you send after the buyer agrees, usually to request an advance or support a bank process. In short, the proforma invoice vs quotation difference is about timing and purpose: the quotation helps the buyer decide, and the proforma helps them pay.

No. A proforma invoice usually follows a quotation and restates the terms in invoice form, often because the buyer needs it to approve the purchase, arrange payment or open a letter of credit. Some sellers call it a proforma quotation, but that is the same document as a proforma invoice, not a third type. In a typical deal the documents follow this order:

• Quotation: the price and terms you offer.
• Acceptance or purchase order: the buyer agrees, sometimes after negotiating.
• Proforma invoice: the agreed terms in invoice form, with bank details for an advance.
• Receipt voucher: issued when an advance for services arrives.
• Tax invoice on delivery, adjusting any advance; for exports, this export invoice usually also serves as the commercial invoice.

Not every deal uses every step. A domestic customer who accepts your quote and pays on delivery may never need a proforma, and a repeat overseas buyer may ask for a proforma without a fresh quotation. For how a proforma differs from the final bill, see proforma invoice vs tax invoice.

A quotation can become binding. Under the Indian Contract Act, a firm quotation with clear price and terms works as a proposal, and once the buyer accepts it, a contract is formed. A general price list or rough estimate is only an invitation to make an offer, so nothing is binding until terms are agreed.

You can withdraw a quotation before it is accepted, and it lapses when its validity date passes. A proforma invoice sets out the terms on which the seller is willing to supply. Once the buyer accepts it, signs it or pays an advance against it, it becomes strong evidence of the contract, but it is still not a tax document.

Yes, you can issue one, but it has no standing under GST. A proforma invoice is not a tax invoice, so it creates no GST liability, the buyer cannot claim input tax credit on it, and it is not reported on the e-invoice portal. GST applies when you make the supply, or for services, when you receive an advance.

• Advance for services: GST is due when the advance arrives, so you issue a receipt voucher showing the tax.
• Advance for goods: no GST is due at that stage for most suppliers; tax applies when you issue the invoice.
• Export of services under a letter of undertaking (LUT): no IGST is charged, but you still issue a receipt voucher for the advance.
• Deal cancelled after an advance: you issue a refund voucher.
• Final bill: for services, the tax invoice is due within 30 days of supplying the service, and it adjusts the advance already received.

A quotation needs enough to let the buyer decide; a proforma needs enough for the buyer's finance team or bank to pay.

Number proformas in a separate series from your tax invoices. GST does not require this, but it keeps your tax invoice series unbroken and lets banks match the proforma to the payment. Service exporters do not need HS codes or Incoterms; a clear scope, milestones and the LUT note do the same job. For goods terms, see incoterms.

A proforma invoice gives the buyer a formal, priced document to act on before the sale is completed. In India and abroad, businesses use it to:

• request an advance or part payment before work starts or goods ship
• get the buyer's internal purchase approval or budget sign-off
• book transport and insurance, or put a value on samples sent free of charge
• let an overseas buyer arrange an advance transfer, apply for an import licence or open a letter of credit (LC)

An LC is a bank's promise to pay against documents that match its terms, not a guarantee. The buyer usually applies for it using your proforma, so check that the LC's amount, description and terms match what you agreed; under the international LC rules, the bank then pays only if the commercial invoice and other documents you present match the LC exactly.

For advances, the payment should carry the right purpose code: P0103 for advance receipts against export of goods, and the normal service code, such as P0802 for software services, for services. Goods must normally be shipped within 3 years of an advance.

Worked example: a Bengaluru design studio agrees a $2,000 website project with a US client and sends a proforma for a 50% advance. The client pays $1,000, the studio issues a receipt voucher with nil IGST under its LUT, keeps the FIRA as proof, and on delivery raises a $2,000 export invoice that shows the $1,000 already received.

Customs clears exported goods on the shipping bill and commercial invoice, not on the proforma; see commercial invoice for export. Payment platforms can make the advance step simpler: Xflow, for example, issues an eFIRA within 24 hours for every international transaction.