Proforma Invoice: Sample, Template & Invoicing How-to

Proforma Invoice Template

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What is a Proforma Invoice?

A Proforma Invoice is a preliminary bill of sale sent to buyers in advance of a shipment or delivery of goods. It's essentially a quotation or an estimated invoice that's sent before the final one. Think of it as a "good faith" document that outlines the details of a potential sale, giving the buyer a clear picture of what they can expect to pay if they decide to move forward with the transaction.

Unlike a standard invoice, a Proforma Invoice isn't a demand for payment. Instead, it serves as a declaration of commitment from the seller to provide the goods or services specified, at the listed prices. It's commonly used in international trade to declare the value of goods for customs purposes, helping to streamline the import process and avoid delays.

Proforma Invoices typically include many of the same elements as a standard invoice: details of the goods or services, quantities, agreed prices, and delivery terms. However, they often include additional information relevant to international shipments, such as Harmonized System (HS) codes for products, which are used for customs classification.

It's worth noting that while a Proforma Invoice looks similar to a commercial invoice, it's not a legally binding document. The final price may change if, for instance, shipping costs end up being different than initially estimated. Once the buyer agrees to the terms outlined in the Proforma Invoice and the goods are ready for shipment, the seller will then issue a final, official invoice.

Why use proforma invoice

Proforma invoices are issued for a variety of reasons, primarily to facilitate smoother business transactions and international trade. When to use proforma invoices largely depends on the specific circumstances of a deal, but they're particularly common in situations involving new customers, complex orders, or cross-border transactions. People use proforma invoices because they serve as a detailed preview of a potential sale, allowing buyers to understand exactly what they're getting and at what cost before committing to a purchase.

Using proforma invoices can be especially beneficial in international trade scenarios. They provide a clear breakdown of costs, including shipping and potential customs duties, which helps importers prepare for the financial aspects of bringing goods into their country. This transparency can prevent misunderstandings and unexpected expenses, making the import process more efficient and less prone to delays.

Businesses often turn to proforma invoices when dealing with high-value or custom-made goods, think of software develoment, custom services, or custom manufacturing projects. In these cases, the seller may need the buyer's commitment before starting production or arranging shipping. By issuing a proforma invoice, the seller can outline all the terms of the sale, giving the buyer a chance to review and approve before any work begins or costs are incurred.

Another common scenario for using proforma invoices is when a company needs to declare the value of goods for customs purposes without issuing a final, binding invoice. This allows for the shipment to move forward while giving some flexibility if final costs end up differing slightly from the initial estimate.

Proforma invoices also play a crucial role in helping buyers secure funding or obtain import licenses. Many financial institutions and government agencies require detailed cost breakdowns before approving loans or permits for international purchases. In these situations, a proforma invoice provides the necessary documentation to move these processes forward.

Ultimately, the use of proforma invoices boils down to creating clarity and alignment between buyers and sellers. They serve as a powerful communication tool, setting clear expectations about what's being sold, at what price, and under what terms. This upfront transparency can help build trust between parties, streamline negotiations, and pave the way for successful business relationships.

How to do proforma invoicing

Begin by clearly labeling your document as a "Proforma Invoice" at the top. This distinguishes it from a standard invoice and sets the right expectations for the recipient that it is not a demand for payment and is subject to change. This helps avoid any confusion and maintains the document's status as a preliminary quote rather than a final bill.

Next, include your company's details, such as your business name, logo, address, and contact information. This not only brands the document but also provides the necessary information for follow-up communications.

Include the customer's information, ensuring you have their full name, company name (if applicable), and complete address. For international shipments, don't forget to include the country. Add a unique identification number for the proforma invoice and the date of issue. If there's a corresponding purchase order number from the customer, include that as well for easy reference.

The core of your proforma invoice should be a detailed description of the goods or services being offered. Provide a clear breakdown of each item, including quantities, unit prices, and total prices. For physical goods, include relevant details like size, color, or model numbers. If you're offering services, describe each one clearly. Don't forget to include the total amount due, broken down into subtotal, applicable taxes, shipping costs, and the grand total. Clearly state which currency the prices are in, especially for international transactions.

Specify your payment terms on the proforma invoice. This should include the expected method of payment (e.g., bank transfer, credit card) and the deadline for payment. If you offer early payment discounts or impose late payment penalties, detail these conditions clearly. For international shipments, include the relevant Incoterms (International Commercial Terms) you're using. These standardized terms clarify who's responsible for shipping costs and at what point the risk transfers from seller to buyer.

Provide estimated shipping dates and the expected delivery timeframe. If there are any special shipping or handling instructions, include these as well. For international shipments, you may need to include the Harmonized System (HS) code for each product to help customs officials classify the goods. It's also wise to include any relevant terms and conditions of sale, covering areas like your return policy, warranty information, or any limitations of liability.

When using proforma invoices, timing is crucial. Send them early in the negotiation process to give potential buyers a clear understanding of costs and terms. This allows for any necessary discussions or adjustments before finalizing the deal. Be prepared to revise the proforma invoice if negotiations lead to changes in quantities, prices, or terms.

Use proforma invoices as a tool for clear communication. They can help prevent misunderstandings about what's being sold, at what price, and under what conditions. This transparency can streamline negotiations and build trust with your customers. Remember that while a proforma invoice should be as accurate as possible, it's understood that some details might change before the final invoice is issued.

For international transactions, proforma invoices play a crucial role in customs procedures. They help customs officials determine the value of goods for duty assessment and can facilitate the import process. Make sure your proforma invoices comply with the requirements of both your country and the destination country to avoid delays or complications.

By following these best practices as the guidelines, you can create and use proforma invoices effectively, facilitating smooth business transactions and building strong relationships with your customers. Remember, the key is to be clear, comprehensive, and transparent in your communication.

What to include in a proforma invoice

• Clear label stating "Proforma Invoice" at the top of the document
• Your company's information:
  • Company name and logo
  • Full address
  • Contact details (phone, email)
• Customer's information:
  • Customer's name
  • Company name (if applicable)
  • Full address, including country for international shipments
• Proforma invoice details:
  • Unique invoice number
  • Date of issue
  • Customer's purchase order number (if applicable)
• Detailed description of goods or services:
  • Item names and descriptions
  • Quantities
  • Unit prices
  • Total price for each line item
  • For physical goods: size, color, model numbers, etc.
  • For services: clear description of each service offered
• Financial details:
  • Subtotal
  • Applicable taxes
  • Shipping costs
  • Grand total
  • Currency used
• Payment information:
  • Payment terms
  • Accepted payment methods
  • Payment deadline
  • Early payment discounts or late payment penalties (if applicable)
• Shipping information:
  • Incoterms for international shipments
  • Estimated shipping date
  • Expected delivery timeframe
  • Special shipping or handling instructions
  • Harmonized System (HS) codes for international shipments
• Terms and conditions:
  • Return policy
  • Warranty information
  • Limitations of liability

FAQ about proforma invoice