Proforma Invoice – What is a Proforma Invoice and Why Use One?

what is proforma invoice

In business, proforma financial statements (proforma invoices) are prepared in advance of a planned transaction, such as a merger, an acquisition, a new capital investment, or a change in a capital structure such as incurrence of new debt or issuance of stock.

What is a Proforma Invoice?

A proforma invoice is a document that states a commitment on part of the seller to deliver the products or services as notified to the buyer for a specific price (Wikipedia). It is thus not a true invoice.

A pro forma invoice is delivered to a buyer in special circumstances – typically, when all details for the invoice are not yet known.

In the simplest terms, a proforma invoice outlines how much a certain number of goods or services will cost. Because the customer may not yet have agreed to, or even seen, these numbers a proforma invoice is designed to give the customer an idea of how much what they’re asking for will cost them.

Proforma invoices are also sometimes referred to as estimates or quotes. The seller should not register a proforma invoice as an account receivable, and conversely, the buyer should not register this type of invoice as an account payable.

When to use proforma invoices?

Pro forma invoices are used if you need to produce a document to a customer for products or services that you are yet to deliver. Pro forma invoices are typically sent in order to declare the value of goods for customs.

Pro forma invoices should not be regarded as VAT invoices, which means that they should contain the phrase ‘This is not a VAT invoice’. When the buyer agrees to the products or services included in the pro forma invoice, and you deliver these items, you are obliged to send a true VAT invoice within the given time-frame.

In the past, business owners would traditionally issue a quote and then have to produce an invoice once the customer had agreed to the terms laid out. Proforma invoice is sent to the buyer before the commercial invoice. It acts like a quotation and it is otherwise known as a preliminary invoice.

Contents of a sample proforma invoice

A proforma invoice template contains all the details of the importer and the exporter, as well as information about the goods involved in the transaction. This is one of our most popular proforma templates. The design is very simple and professional; it includes main components one expects to see in such invoice:

  • Shipper’s name and address.
  • Receiver’s name and address.
  • Invoice date of issue.
  • Invoice reference number.
  • Mode of transport details.
  • The number of packages and weights.
  • Items with a description, price, and quantity.
  • Tax rate, shipping, and handling rate.
  • Company/business logo.

If your business requires additional fields (i.e. discounts, terms of service and payment, estimated shipping date and validity date), you can easily modify this template to suit your needs. Click here to start creating your own invoices for free.