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Thread: Proforma vs. Tax Invoice

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    Proforma vs. Tax Invoice

    I would like to revisit the proforma invoice vs. tax invoice. I sell goods to companies some larger businesses or sometimes universities. Now I'm partly an online business but is not restricted to just online as some of my transactions are also offline.

    In most cases I will produce a proforma invoice for payment first before a product will be shipped to the customer or picked up. I'm not a stock holding company and thus have to pay my suppliers when I pick up the product.

    Some of these clients insist on Tax Invoices before they will make a payment which puts me in a dilemma and where I had an issue before with SARS when a potential client requested a tax invoice for a massive quote that was done, took the tax invoice and claimed the VAT before I received any payment or any goods was ordered. And believe me you can show that you issued a credit note because the tax invoice was never paid, SARS is not interested in that because they've paid money out on a legal and binding tax invoice and wants to recover that output tax from you, which you never received. I had to hire top tax lawyers to get SARS of my back and show them that the potential client committed the fraud and I wasn't in on it (I think SARS refers to it as foul play).

    Now I understand that a proforma invoice is not a legal and binding document but it also puts my business at risk of issuing tax invoices and not getting any payment for it. In actual fact SARS told me that I should not issue any tax invoices if I have not received payment, rendered services or a product has been delivered, the latter I'm not prepared to risk without payment.

    I get into big fights with finance departments which seems to me like a loophole in the VAT system for fraudsters, I might be wrong.

    I want to ask the clever accountants here what can I do in a situation like this, believe me I don't want another SARS visit.

    What is the difference between a Sales Order and Proforma Invoice?

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    Quote Originally Posted by houdini View Post
    In actual fact SARS told me that I should not issue any tax invoices if I have not received payment, rendered services or a product has been delivered, the latter I'm not prepared to risk without payment.
    I would love to get that from SARS in writing. I have a similar issue to you, though not nearly as serious. For me its simply a matter of costing and stock control. If we issue invoices before the goods are made so that we can receive payment, then it messes with the stocks and costings in Pastel. Sometimes it causes irritations such as duplicate invoices because we forget the job has already been invoiced, or the customer never makes payment so we have to go through the hassles of a credit note.

    So I'm hoping for some insight on your question too.

    With regard to the Sales Order, that tends to be an internal document generated from a customer order. Its used to pick or make the order, and is then later used to generate the invoice. Sometimes though, we use the Pastel sales order document as a proforma invoice. It seems to fulfil all the requirements, other than having the words "proforma invoice".


    What is the difference between a Sales Order and Proforma Invoice?[/QUOTE]

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    Platinum Member Mike C's Avatar
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    Speaking from the client's side - we have had situations where payment has been demanded on a Pro-forma invoice before delivery would be made. After we have made payment and received delivery, the Tax Invoice has to be requested numerous times before it is finally issued. This creates a problem for us as we cannot claim the VAT back on a Pro-Forma invoice, but it has to be entered into the accounting system in order to balance at the end of the month. In a business where VAT returns are submitted on an monthly basis, and where VAT claims can be large, this can also affect the cash flow.

    If Suppliers were only as keen to supply the Tax Invoice after payment has been received as they were to supply the Pro-Forma Invoice before delivery, there would probably be no hassle.

    If I remember correctly the law also says that a Tax Invoice must be issued within 21 days of the supply of goods ... which also does not always happen.
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    Moderator IanF's Avatar
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    For the tax guys could an invoice not be issued which is a proforma tax invoice which is only a valid tax invoice on payment. A bit like insurance premiums?
    Only stress when you can change the outcome!

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    Diamond Member Justloadit's Avatar
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    mmmm very interesting thread. I have been in this situation a number of times.
    What about saying "Not a valid invoice until payment received?" in bold on the invoice. On payment the invoice is edited and sent off to client?
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    We are currently undertaking this practice of issuing a proforma invoice and once the final payment is made we issue the tax invoice straight away. For our company, we ensure the tax invoice is sent to our customer the moment the money reflects and clears in our banking account. This protects us as a small business as we do not have the capacity to carry the credit for the customer with our supplier. Our current economy seems to be moving over to a "cash-only" society as it's rare to find suppliers that provide credit for fear of not being paid.

    I am interested in the following:
    1. I did not know that you can supply a tax invoice up to 21 days AFTER supply of goods/services - can someone confirm that?
    2. If in this case you receive the final payment and you prepare the tax invoice - what should the date be? The date of final payment or the date of the original proforma invoice? What if payment falls in a different month? This affects VAT periods!
    3. As is the point made by "justloadit" allowed? Can one add to the document "this is not a valid tax invoice until final payment received"? Would this be advisable?

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    Platinum Member Mike C's Avatar
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    1. I did not know that you can supply a tax invoice up to 21 days AFTER supply of goods/services - can someone confirm that?
    Taken from SARS VAT404 Guide for Vendors Chapter 13 section 13.3

    The following important points should also be noted with regard to tax invoices:
    * A vendor must issue a tax invoice to the recipient within 21 days of the supply having been made where the consideration for the supply exceeds R50 (whether the recipient has requested this or not).
    An education isn't how much you have committed to memory, or even how much you know. It's being able to differentiate between what you do know and what you don't. - Anatole France

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    I think this is what you should actually quote on your pro forma's to avoid arguments with customers. Well, some at least.
    In pastel you can change the name of the "Sales Order" to Pro forma Tax Invoice in the template. It is the same thing.


    Quote Originally Posted by Mike C View Post
    Taken from SARS VAT404 Guide for Vendors Chapter 13 section 13.3

    The following important points should also be noted with regard to tax invoices:
    * A vendor must issue a tax invoice to the recipient within 21 days of the supply having been made where the consideration for the supply exceeds R50 (whether the recipient has requested this or not).

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