A Pro Forma Invoice, Put Simply: A Preliminary Commercial Document Containing Essential Information about Goods or Services, Accompanied by an Example.
Rewritten Article:
Hold up! You've stumbled upon a pro forma invoice, and it's not what you think. A pro forma invoice is essentially a sort of preliminary bill of sale that businesses send to buyers after they've placed an order but before shipping the goods. Let's break it down:
What the Heck is a Pro Forma Invoice?
In simple terms, it's a confident proposal detailing the terms of purchase. However, don't be alarmed if the terms change down the line. Think of it as a good-faith estimate to keep both parties on the same page, avoiding any dicey surprises about significant charges when the transaction is final.
Companies across various industries rely on pro forma invoices to smooth their sales process by pinning down terms ahead of time, minimizing unnecessary back-and-forth.1 Most of these invoices feature a precise sale price, plus an estimate of any commission or fees like taxes and shipping costs.
Key Points:
- Pro forma invoices are shared with buyers ahead of the shipment or delivery of goods or services.
- Once the transaction is complete, a formal invoice follows, outlining the payment details.
(Note: Pro forma invoices don't specify the exact presentation or format.1)
Digging Deeper into Pro Forma Invoices
A pro forma invoice differs from a simple price quotation as it outlines the transaction terms. That said, these terms might change as needed. The pro forma invoice functions as a guideline to prevent unforeseen charges when the transaction is final.
In many cases, businesses use pro forma invoices to meet their internal purchase approval process. By doing so, the sales process becomes more streamlined, reducing unnecessary back-and-forth after the transaction is initiated.1
International Transactions & Pro Forma Invoices
International transactions often involve customs, and you can't just shove goods through them randomly. A traditional commercial invoice includes buyer and seller information, a description of the goods, quantity, value, purchase location, payment method, currency, and transportation details.
However, pro forma invoices aren't necessary for international shipments but are frequently used to provide an estimate of costs for the products being purchased. Customs officials will need enough information from a general examination of the goods to determine the applicable duties.3
Purpose of a Pro Forma Invoice
A pro forma invoice serves as a communication tool between the seller and buyer, detailing the expected costs, fees, and delivery date for an order. By doing this, the manufacturer can minimize any potential misunderstandings when the order arrives.3
Pro forma invoices provide buyers with a chance to negotiate terms before the delivery. For example, if the buyer isn't thrilled with the price, quantity, or delivery timeline, they can chat with the manufacturer to reach an agreement everyone's happy with.3
While pro forma invoices aren't always required, they're generally a smart move because they can prevent disputes at the time of delivery. 2
Pro forma Information
For International Shipments
When goods venture into U.S. customs, specific documentation is required. A traditional commercial invoice provides a wealth of information, such as the buyer and seller, goods description, quantity, value, purchase location, payment method, currency, carrier, and more.
However, a pro forma invoice isn't required for international shipments, but it's often used when a transaction isn't final and requires an estimate of product costs. The pro forma invoice should include sufficient information to enable customs officials to determine the duties needed from a general examination of the goods. This information can include:3
- Estimated price
- Product description and quality
- Product quantity
- Payment method
- Expected delivery time
For Other Transactions
The intricacies of a pro forma invoice vary depending on the business. Generally, a pro forma invoice:3
- Clearly identifies itself as a pro forma invoice, distinguishing it from other invoices
- Features the transaction date
- Describes the product
- Details the quantity
- Provides the selling price
- Specifies the delivery date
- Outlines handling fees
- Breaks down shipping costs
- Includes any buyer or seller specifications
Fun Fact:
"Pro forma" means "for the sake of form." It indicates that the information within a document is based on projections and isn't final.2
Pro Forma Invoice vs. Formal Invoice
A pro forma invoice prepares the ground for a purchase agreement, laying out the terms when an order is placed. In contrast, a formal (final) invoice is an official commercial instrument issued at the time of delivery, signifying the buyer's payment obligation. Unliked a formal invoice, a pro forma invoice is simply used to avoid misunderstandings about specific transaction details, such as the amount due.5
Pro Forma Invoice Example
A company might issue a pro forma invoice if the sales contract states that full payment isn't due until the buyer receives certain goods.
For example, a bakery customer might agree to the price of a cake on a pro forma invoice, and the baker will deliver the cake once it's ready. The customer will then pay for it when they receive the final, formal invoice. The final invoice amount should be similar to or the same as the amount on the pro forma invoice.4
What's in a Pro Forma Invoice?
A typical pro forma invoice includes the following elements:3
- "Pro Forma Invoice" and "Not an Invoice" clearly mentioned
- Transaction date
- Product description
- Quantity
- Selling price
- Delivery date
- Handling fees
- Shipping costs
- Any customer or seller specifications
- In the world of finance and business, a pro forma invoice serves as a preliminary estimation for a token sale during an initial coin offering (ICO), outlining the terms of the transaction.
- As technology advances, some businesses may choose to incorporate decentralized finance (DeFi) solutions in their token sales, making the pro forma invoice an essential tool for ensuring transparency and minimizing potential disputes throughout the process.
- In the event the project pursues international business ventures, the pro forma invoice will provide customs officials with a detailed estimate of the token sale's costs, aiding in the determination of applicable fees.
