Proforma Invoice vs. Purchase Order

Attribute	Proforma Invoice	Purchase Order
Definition	Document sent by a seller to a buyer before a transaction to confirm the details of the sale	Document issued by a buyer to a seller to request goods or services
Legal Status	Not a legally binding document	Legally binding document
Issued By	Seller	Buyer
Content	Details of the products or services, prices, terms, and conditions	Details of the products or services, quantities, prices, terms, and conditions
Purpose	Provide information to the buyer before the actual transaction	Formal request for goods or services from the seller

Introduction

Proforma invoices and purchase orders are essential documents in the world of business transactions. While they both serve a similar purpose of outlining the details of a transaction, there are key differences between the two. In this article, we will compare the attributes of a proforma invoice and a purchase order to help you understand their distinct roles in the procurement process.

Proforma Invoice

A proforma invoice is a preliminary bill of sale sent to buyers in advance of a shipment or delivery of goods. It is not a legally binding document but rather a commitment to provide goods or services at a certain price. The proforma invoice typically includes details such as the description of the goods or services, quantity, price, terms of sale, and payment terms. It serves as a quotation that outlines the cost of the transaction before the actual sale takes place.

• Not legally binding
• Provides a preview of the final invoice
• Includes details of goods or services
• Outlines pricing and payment terms
• Used as a commitment to provide goods or services

Purchase Order

A purchase order, on the other hand, is a legally binding document issued by a buyer to a seller to confirm the details of a purchase. It includes specific information such as the quantity of goods or services, agreed-upon price, delivery date, and terms of payment. The purchase order serves as a contract between the buyer and seller, outlining the terms and conditions of the transaction. It is used to track and manage orders, ensuring that both parties fulfill their obligations.

• Legally binding document
• Confirms details of a purchase
• Includes quantity, price, delivery date, and payment terms
• Serves as a contract between buyer and seller
• Used to track and manage orders

Key Differences

One of the main differences between a proforma invoice and a purchase order is their legal status. While a proforma invoice is not legally binding and serves as a preview of the final invoice, a purchase order is a legally binding document that confirms the details of a purchase. Another key difference is the timing of issuance - a proforma invoice is typically sent before the sale takes place, while a purchase order is issued after the terms of the transaction have been agreed upon.

Additionally, the content of a proforma invoice and a purchase order differs in terms of detail. A proforma invoice focuses on outlining the goods or services, pricing, and payment terms, while a purchase order includes specific information such as quantity, delivery date, and terms of payment. The purpose of these documents also varies - a proforma invoice is used as a commitment to provide goods or services, while a purchase order is used to track and manage orders between the buyer and seller.

Conclusion

In conclusion, while both proforma invoices and purchase orders play a crucial role in the procurement process, they serve different purposes and have distinct attributes. Understanding the differences between these two documents is essential for businesses to effectively manage their transactions and ensure that both parties fulfill their obligations. By utilizing proforma invoices and purchase orders appropriately, businesses can streamline their procurement process and maintain a clear record of their transactions.