On the accounting software the menu heading will still show as ‘draft’, but if you download them or email them to your clients, they will have a Proforma heading on. Download one to see it works. Just make sure not to approve them. If you do, they will turn into an invoice and be included in your VAT return.
Once the client paid, you can then approve them and send them the actual invoice.
Effects of proforma (not real) invoices
Keeping your invoices in draft can have a few affect on your accounting and also on your cash flow forecasting, so let’s look at these:
Proforma invoices as they are in draft, won’t show on your Profit & Loss. Only approved invoices will show there. So your month end report, might be slightly off, until you are waiting for the payment.
Some accounting software might allow you to include draft invoices in your P&L, but be aware, that if you have other draft invoices on your system, they will show too. They can be both draft sales invoices or purchase bills! So don’t forget to check both!
If you are using a cash flow forecast tool, that syncs with your accounting software, then you might not see these proforma invoices as potential money coming in. Therefore, in this case, make sure to add them manually to your cash flow, so it is accurate. Again, some cash flow software might allow you to import draft invoices – just check what you have on your system first.
If you decided to import draft invoices, we highly recommend to have strict processes in place on what invoices you save as draft or awaiting approval instead. The last thing you want is having draft invoices wrongly showing up in your cash flow as money coming in – when they are not. It can put your business at risk.
We hope this article helped you consider the ins and outs of proforma invoices. If you have any questions, please let us know in the comments below.
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