Corporate Finance & Accounting

proforma invoice

What is a pro forma invoice?

A pro forma invoice is a preliminary sales order sent to the buyer before the goods are shipped or delivered. Invoices usually describe the item purchased and other important information such as shipping weight and shipping costs.

key takeaways

  • A pro forma invoice is sent to the buyer before the shipment or delivery of the goods or services.
  • Most pro forma invoices provide the buyer with an accurate sales price.
  • There are no guidelines for the exact presentation or format of a pro forma invoice
  • A pro forma invoice only requires enough information for customs to determine the required duty through a general inspection of the contained goods.

Understanding Proforma Invoices

Proforma invoices often come into play in international transactions, especially for import customs purposes. A pro forma invoice is different from a simple quotation in that it is a binding agreement, but the terms of sale are subject to change.

Businesses in nearly all industries use pro forma invoices to satisfy their internal procurement approval processes. A pro forma invoice simplifies the sales process by eliminating the extra back-and-forth after the sale is complete, as all terms are pre-agreed.

Most pro forma invoices provide the buyer with an accurate sales price. It includes an estimate of any commissions or fees, such as applicable taxes or shipping. While pro forma invoices are subject to change, it represents a good faith estimate to avoid exposing the buyer to any unexpected and significant costs after the transaction is completed.

The company may send a pro forma invoice prior to shipping any agreed deliverables or shipping items. Although it contains exact cost details associated with the sale, it is not an official payment requirement. There are no guidelines for the exact presentation or format of a pro forma invoice, which may or may not resemble other commercial invoices.

If the company uses a pro forma invoice for US Customs, the commercial invoice must be presented within 120 days.

special attention items

Certain documents are required for this purchase before the goods pass through U.S. Customs.

A pro forma invoice only requires enough information for customs to determine the required duty through a general inspection of the contained goods. If the company uses a pro forma invoice for customs, the commercial invoice must be presented within 120 days.

Proforma Invoice Example

If the relevant parties have completed the sale, a commercial invoice is recorded. If the transaction has not yet occurred, the selling company can use a pro forma invoice. Companies may also use pro forma invoices if the terms of the sales contract provide that full payment is not to be made until the buyer receives certain goods.

For example, a bakery customer might agree on a price for a cake on a pro forma invoice, and the baker will deliver the cake once it’s ready. The customer will then pay when the invoice is received. The final invoice amount will be the same or close to the amount on the pro forma invoice.

What’s in a pro forma invoice?

Most pro forma invoices provide the buyer with an accurate sales price. It includes an estimate of any commissions or fees, such as applicable taxes or shipping. While pro forma invoices are subject to change, it represents a good faith estimate to avoid exposing the buyer to any unexpected and significant costs after the transaction is completed.

Why use pro forma invoices?

Proforma invoices often come into play in international transactions, especially for import customs purposes. Businesses in nearly all industries use pro forma invoices to satisfy their internal procurement approval processes. A pro forma invoice simplifies the sales process by eliminating the extra back-and-forth after the sale is complete, as all terms are pre-agreed.

When are pro forma invoices sent?

The company may send a pro forma invoice prior to shipping any agreed deliverables or shipping items. While it does contain exact cost details associated with the sale, this is not an official payment requirement. There are no guidelines for the exact presentation or format of a pro forma invoice, which may or may not resemble other commercial invoices.

How is a commercial invoice different from a pro forma invoice?

A traditional commercial invoice must list a lot of information, such as buyer and seller, description of the goods, quantity, value of all shipped items, and the place of purchase. A pro forma invoice only requires enough information for customs to determine the required duty through a general inspection of the contained goods. If the company uses a pro forma invoice for customs, the commercial invoice must be presented within 120 days.

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