What's the correct way Finance should process a Proforma Invoice from a supplier?

belle84 Registered Posts: 1 New contributor ?
The company I work for process proforma invoices as if they are normal tax invoices and then try and process the tax invoice onto the system again. Sometimes resulting in a duplicate payment to a supplier. I know this is not a good or correct way of doing this.

We are trying to make the process electronic. We use Great Plains & Proactis, and I have been given the task of finding a way to make this process electronic using these two systems. Nobody seems to know a lot on this subject in my finance department or they are being deliberately unhelpful and I am pulling my hair out as to how to approach this.

I have gone onto HMRC website, google & aat website and can find nothing to help me. So I would be very interested to know how other companies/departments have dealt with this issue and what their process is.

My previous exposure to proforma invoices in previous employment, has been to process the payment onto the purchase ledger subsidary account (so a payment on account) and keep the proforma in a binder as well as backed up to the payment paperwork (i.e a cheque). When the supplier receives payment they will then send a tax invoice and the accounts department would process this tax invoice onto the system and allocate the payment to the invoice. Then the proforma would be attached to the actual tax invoice and filed away. This process was all manual and I am unable to think how this can be applied electronically, mostly because our accounts payable department are against change and also because the company, for some strange reason, doesn't like showing unallocated payments on the ledger, which is the only way I can see a part of this process working.

Your suggestions & ideas would be greatly appreciated and thank you for taking the time to read


  • Gem7321
    Gem7321 MAAT, AAT Licensed Accountant Posts: 1,438
    I'm not familiar with the electronic systems but didn't want to read and run. We enter proforma invoices as a payment on account on the suppliers ledger then we keep the hard copies with the unentered invoices (this means we look at them frequently to remind us to chase the supplier for a tax invoice if we don't receive it promptly). Then when the tax invoice arrives we enter it and allocate the proforma payment against the invoice and then it is filed. Very much similar to your manual system.

    I'm struggling to think of a way you can efficiently process proformas without showing unallocated payments.
  • NeilH
    NeilH Registered Posts: 553

    If finance aren't showing payments-on-account (or similar) as real payments-on-account then they could be affecting the balance of the company’s assets/liabilities - depending on how big these sums are of course and supplier balances at financial year end. Basically, supplier accounts would be showing nil value when in fact value is owed to your company. Putting aside the department’s reluctance to change, this sounds like someone somewhere not understanding what accounting is about and/or trying to be "neat" for the sake of being "neat".

    However, resolution of this will depend on the systems you're using and I don’t have any experience of these systems. You might find that there is a way of posting proforma/payments-on-account as a particular type of transaction, this might make it clearer what a payment-on-account is for and you might be able to reference the transaction to a proforma invoice etc. Sophisticated systems should be able to deal with this rather than just posting a simple payment-on-account, you might need to speak to your systems vendor/support provider. Keep in mind a payment on account is just that - so you may end up with a tidier way of dealing with the transactions but they will still show as a payment-on-account.

    A company I worked for in the past had a method whereby there was one supplier account on the purchase ledger for any proforma/payments-on-account. All proforma payments were posted to this account and a reconciliation of the balance was held on a spreadsheet. When the full invoice was received, the payment was transferred to the supplier account and posted/matched to the full invoice. This would need careful management to make sure the balances, payments/invoices are tracked etc. It was something that was revived by the FD and myself at the month end.

    I hope this helps, but feel free to ask any questions you might have


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