Proforma or advance invoice? The difference, and when you need each

An advance invoice is an invoice issued for an advance received before delivery. If an advance arrives on a proforma, the Hungarian VAT Act requires VAT and an invoice (an advance invoice) for the advance too. As it is an invoice, it is, as a rule, reported to NAV's Online Számla system too, and the invoicing software does that.

The exact rules (when to issue it, what goes on it, and what to do when the advance and the final amount fall under different rates) are set out in the VAT Act. This article is general information, not tax advice: check your case with your accountant.

The final invoice typically covers the full amount and takes the advance already invoiced into account; exactly how that appears on your invoice is for your invoicing software and your accountant to say.

1. You agree: the customer accepts the quote.
2. You send a proforma for the advance.
3. The customer transfers it; the money arrives.
4. You issue an advance invoice for the advance received.
5. You do the work or deliver the goods.
6. You issue the final invoice, which takes the advance into account.

An invented example: a joiner in Szeged builds a fitted kitchen and asks for part of the price before starting. First he sends a proforma, which only asks for payment. When the money arrives, he issues an advance invoice for it. Once the kitchen is fitted, the final invoice covers the full amount and deducts the advance already invoiced.

A proforma is not an invoice, only a request: some people ask for the advance by email, with an amount and a bank account number. A proforma is useful because the buyer gets a proper, numbered document their bookkeeping can refer to, and from which you later see exactly what the money arrived for.

The advance invoice, however, is not a matter of convenience: if an advance has arrived, the VAT Act requires an invoice for it. If you are unsure, ask your accountant what to do in your case before you ask for an advance.

HelloCRM's Invoicing module treats the proforma and the advance invoice as document kinds of their own, each with its own number series. A proforma is never sent for issuing or reporting, because it is not an invoice.

One press turns a proforma into a real draft invoice, with its lines; press it twice and the second finds the first rather than making another. The invoice is issued through your own Számlázz.hu or Billingo account, and they report it to NAV.

The module is a paid add-on with a free 3-day trial; the customers, the history of quotes and the tasks are in the free core CRM.

• Whether you need an advance invoice in your case, and how soon.
• What to do if the price or the VAT rate changes between the advance and the final amount.
• How the deducted advance should appear on the final invoice.
• What to do if the job does not happen and the advance has to be returned.

It pays to go through these once, on a typical job, and write the answers down: the next advance then needs no new question, and colleagues do it the same way.