Pro forma invoices and tax invoices share many qualities, but they play very different roles for a business. A pro forma invoice is a detailed preview of a transaction – a formal quote used before a deal is finalised. A tax invoice is an official, legally recognised bill that documents a completed sale and requests payment, including tax.

Knowing when to use pro forma invoices and when to send tax invoices is necessary for tracking revenue and cash flow and staying compliant with business authorities. Below, we'll explain the difference between a pro forma invoice and a tax invoice, when to use them and why the distinction matters for your business.

What's in this article?

• What is a pro forma invoice?
  
• What is a tax invoice?
  
• When should you use a pro forma invoice vs. a tax invoice?
  
• Why does understanding these invoices matter for your business?
  
• How Stripe Invoicing can help
  

What is a pro forma invoice?

A pro forma invoice is an early version of an invoice that's generated before a sale is finalised. It outlines what a buyer can expect to pay for specific goods or services, including quantities, prices, taxes and shipping estimates. But it's not a real invoice and doesn't trigger payment or accounting entries. The name means "for the sake of form" in Latin, and it's a formal estimate that helps the buyer and seller agree on all the details before work begins or money changes hands.

A pro forma invoice gets both parties to agree on what's being sold and under what conditions. Buyers can review it, request changes or use it to get internal approvals or acquire financing before they commit. When both sides come to an agreement, the seller will follow up with a tax invoice, which is the official record of the transaction.

A pro forma invoice helps the buyer understand what they'll be paying for and gives the seller a way to document the proposed sale, without locking either party into a transaction.

What is a tax invoice?

A tax invoice is an official document that confirms a sale and requests payment. Once goods or services are delivered, or when payment becomes due, the seller issues a tax invoice to the buyer that contains the final details: prices, quantities, taxes and total amount owed.

In many countries, registered businesses must issue tax invoices for taxable sales. They serve as proof of income for the seller, by recording revenue and proof of purchase for the buyer, by recording an expense. Both parties use the tax invoice for bookkeeping, audits and tax filings. A buyer can use it to claim input tax credits or deductions, depending on their jurisdiction's rules.

A tax invoice typically lists the seller's and buyer's legal names and addresses, the seller's tax registration number, such as a value-added tax (VAT) or goods and services tax (GST) ID, a unique invoice number and the issue date. It also itemises goods or services provided, quantities, prices, applicable tax rates, total tax charged and the grand total owed.

When should you use a pro forma invoice vs. a tax invoice?

You need to use the right invoice at the right time to keep your sales process efficient and compliant. Which one you send depends on the stage of your transaction.

Use a pro forma invoice in these cases:

• You're quoting or negotiating: Send a pro forma invoice when a customer asks for pricing or terms before they confirm a purchase. It provides a clear overview of what the deal will look like if it moves forward.

• The buyer needs documentation: Some clients, especially in B2B or cross-border trade, need a formal document to secure internal approval, import licenses or financing. A pro forma invoice satisfies that requirement without triggering payment.

• You're building trust with a new customer: For first-time buyers or custom projects, a pro forma invoice helps clarify expectations and terms before work begins or goods are shipped.

Use a tax invoice in this case:

• The sale is complete and payment is due: Once goods or services have been delivered, issue a tax invoice to make the sale official and request payment. A tax invoice records the transaction for your tax reporting and bookkeeping.
  

Why does understanding these invoices matter for your business?

Knowing when to use pro forma and tax invoices can affect how efficiently you run your business and how quickly you get paid.

Here are four areas where this matters.

Cash flow and forecasting

Pro forma invoices help forecast revenue and anticipate cash inflows before sales are confirmed. Businesses that track pro forma activity often get better visibility into their sales pipelines and can manage working capital more accurately.

Customer confidence

Sending a pro forma invoice signals competence and transparency. It shows the buyer exactly what they're agreeing to and under what terms. This clarity can speed up approvals, especially in global B2B trade, where deals often span currencies, languages and regulations.

Tax and audit readiness

Using pro forma and tax invoices correctly can protect your business during audits. Many tax authorities treat a pro forma invoice as a non-document, which means it can't be used to justify deductions or input credits. Mislabeling invoices can create compliance risks or delay refunds, particularly in VAT and GST systems.

Financial efficiency

Companies that standardise how and when they issue pro forma and tax invoices reduce internal friction between finance, operations and sales. When teams know exactly which document to send and when, the invoicing process can become faster, cleaner and easier to automate.

How Stripe Invoicing can help

Stripe Invoicing simplifies your accounts receivable (AR) process – from invoice creation to payment collection. Whether you're managing one-time or recurring billing, Stripe helps businesses get paid faster and streamline operations:

• Automate AR: Easily create, customise and send professional invoices – no coding required. Stripe automatically tracks invoice status, sends payment reminders and processes refunds, helping you stay on top of your cash flow.

• Accelerate cash flow: Reduce days sales outstanding and get paid faster with integrated global payments, automatic reminders and AI-powered dunning tools that help you recover more revenue.

• Enhance the customer experience: Deliver a modern payment experience with support for 25+ languages, 135+ currencies and 100+ payment methods. Invoices are easy to access and pay through a self-serve customer portal.

• Reduce back-office workload: Generate invoices in minutes and reduce time spent on collections through automatic reminders and a Stripe-hosted invoice payment page.

• Integrate with your existing systems: Stripe Invoicing integrates with popular accounting and enterprise resource planning software, helping you keep systems in sync and reduce manual data entry.

Learn more about how Stripe can simplify your AR process, or get started today.