Pro-Forma Invoice

A pro-forma invoice is regarded as a basic bill of sale which is usually sent by the vendor to a buyer before goods are shipped or delivered. The pro-forma invoice contains important information, such as a description of the goods ordered and other details, like transport charges or the total weight of the shipped inventory.

What Is a Pro-Forma Invoice?

Pro-Forma Invoices are regarded as preliminary invoices, usually containing an accurate estimate of the total amount requested for payment by the vendor for the delivery of goods, before they are shipped to the buyer.

Pro-forma invoices aren’t legally binding, and parties privy to the transaction can choose to change the terms. Pro-forma invoices generally include basic details about the transaction, and usually indicate an agreement in good faith between two parties, the vendor and the buyer. This way, the buyer knows exactly what they can expect before the goods are even shipped. 

In some cases, for larger orders, the payment might be required in advance, and a pro-forma invoice can be used by the company to request payment, which is then used to facilitate the order. 

What Information does a Pro-Forma Invoice Include?

A pro-forma invoice generally includes important details, including:

The Importance of Pro-Forma Invoices

In most cases, pro-forma invoices are generally used by businesses when conducting international transactions. They are used for clearing customs, especially when goods are being imported. 

It’s important to understand that pro-forma invoices aren’t the same as basic invoice quotations or the initial contract. For starters, pro-forma invoices aren’t legally binding, and the terms of the sale can be changed. 

In most cases, the information that appears on a pro-forma invoice is relatively the same as that found on the final sales invoice, with the exception being that the latter is a legally binding document. 

However, customers aren’t required to pay the pro-forma invoice, and as such, the amounts can’t be recorded in their accounts just yet. Similarly, businesses can’t use the pro-forma invoice to claim VAT.

The pro-forma invoice also includes details about the costs of shipping or any commissions. It’s important to understand that the costs mentioned on the pro-forma invoice are prone to change depending on the circumstances, but in general, they represent an accurate estimate that both parties can use. 

The pro-forma invoice is considered important documentation in most countries before goods are allowed to pass through customs. The customs department may use the pro-forma invoice to calculate the duties to be levied based on an examination of the goods. 

It’s important for companies to also present the final sales invoice within 120 days of using the pro-forma invoice with the customs department. 

Pro-forma invoices are also important since they provide buyers with a near accurate estimate of the total costs, including delivery. This gives them the option to negotiate the terms of the delivery, especially if they aren’t satisfied with the delivery dates, quantity, or the price. 

Once the pro-forma invoice is received, the buyer can simply reach out to the vendor and discuss any changes they want to make.

Difference Between a Pro-Forma Invoice and Other Invoices

Here are some key differences between a pro-forma invoice, which are sent before goods are shipped and include accurate estimates, and other types of invoices that are used in the sales process. 

Commercial Invoice

The commercial invoice is generally used for international goods shipments, and is used as a declaration to provide for the customer and for the border customs officials, indicating exactly what’s shipped, details of the buyer and the seller, and the terms of the agreement. 

The commercial invoice also includes the total value of the goods shipped, and the customs agents can use it to determine any applicable taxes or duties. 

Sales Invoices

The sales invoice is sent when the goods are shipped, or right after the shipment. It’s a formal request for payment, indicating the total quantity of the goods, the particulars of the shipment, and other details, like VAT. 

Credit Memo

If delivered goods are found to be faulty, or if there’s an error in recording the value of goods, a credit memo is issued. A credit memo can be issued by the vendor, indicating particulars that allows the buyer to claim a refund, either partial or in full. 

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