A pro forma invoice is not a traditional invoice but a preliminary bill of sale given to buyers when an order is placed and before shipment or delivery of goods. It typically outlines the purchased items, price, shipping weight, and transport charges.
Key Takeaways
- Pro forma invoices are sent to buyers ahead of shipment or delivery of goods or services.
- A formal invoice follows the completion of a transaction.
- They provide a precise purchase price estimate to the buyer.
- There are no strict formatting guidelines for creating a pro forma invoice.
- They ensure that customs can determine necessary duties on shipments through a general examination.
Understanding Pro Forma Invoices
A pro forma invoice, unlike a standard price quotation, details the terms of a transaction, although those terms are subject to change. It acts as a good faith estimate to keep the buyer informed and clarify any possible unexpected charges once the deal is finalized.
Across different industries, businesses use pro forma invoices to streamline their internal purchase approval processes, limiting back-and-forth communication after initiating a transaction, as all terms are clarified upfront.
Purpose of a Pro Forma Invoice
The primary purpose of a pro forma invoice is transparency. By outlining expected costs, fees, and delivery dates, manufacturers can avoid potential misunderstandings when delivering the order. Buyers also have the opportunity to negotiate terms before delivery if they’re unsatisfied with any aspect.
Though pro forma invoices are not legally required, they are beneficial as they preempt disputes at the time of delivery.
Pro Forma Information
For International Shipments
Specific documents are needed to clear customs for international shipments. Typically, a pro forma invoice includes enough details to let customs determine the necessary duties. It should encompass:
- Estimated price
- Product description and quality
- Product quantity
- Payment method
- Expected delivery time
If used for customs, a pro forma invoice must be followed by a commercial invoice within 120 days.
For Other Transactions
A pro forma invoice should provide all transaction details, even if some figures are not final. This might include:
- The terms “Pro Forma Invoice” and “Not an Invoice”
- Transaction date
- Product description
- Quantity
- Selling price
- Delivery date
- Handling fees
- Shipping costs
- Customer or seller specifications
Pro Forma Invoice vs. Final Invoice
While a pro forma invoice serves as a preparatory notification of a purchase agreement, a final invoice formally requests payment and includes finalized terms. It’s usually issued at the time of delivery to inform the receiving party of their payment obligation.
Pro Forma Invoice Example
Consider a bakery customer agreeing to cake pricing on a pro forma invoice. The baker delivers the cake according to this agreement, and the customer then pays upon receiving the final invoice. The final amount should closely match the pro forma estimate.
What Is in a Pro Forma Invoice?
Most pro forma invoices provide a product description, selling price, and estimated commissions or fees. Though subject to change, these invoices aim to prevent surprises once the transaction is finalized.
Commercial Invoice vs. Pro Forma Invoice
A commercial invoice for international shipments needs to list detailed information about the buyer, seller, product description, quantity, value, and more. A pro forma invoice only needs enough information to let customs determine duties.
Can a Seller Cancel a Pro Forma Invoice?
No, a pro forma invoice is not an actual payment request but a precursor to finalize transaction details. It’s designed to clarify specifics that may yet change.
The Bottom Line
A pro forma invoice outlines sale terms when an order is placed. While not final, it ensures the buyer clearly understands the terms of the sale, including price, delivery date, and additional fees. It’s a preparatory document distinct from the formal invoice issued at delivery.
Related Terms: Invoice, Commercial invoice, Customs duties, Shipping costs, Bill of sale.
References
- International Trade Administration. “Pro Forma Invoice”.
- Zoho. “What Is a Pro Forma Invoice?”
- DHL. “Understanding the Difference: Pro Forma Invoice vs Commercial Invoice”.
- AMID Logistics, LLC. “Invoices and Rates of Exchange in International Shipping: Specific Requirements, V. Pro Forma Invoice”.
- American Express. “What is a Pro Forma Invoice? How and Why to Use It”.
- Freshbooks. “What Is a Proforma Invoice?”
