What is Proforma invoice?

A proforma invoice is a preliminary bill or estimated invoice used to obtain payment from a committed buyer for goods or services before they are delivered.

A proforma invoice is a preliminary bill or estimated invoice used to obtain payment from a committed buyer for goods or services before they are delivered. A proforma invoice contains a description of the goods, the total payable amount, and other transactional information.

It is essentially a “good faith” agreement between you (the seller) and a customer so that the buyer knows what to expect in advance.

A proforma, for example, can be used to propose the details of an upcoming transaction if payment is required in advance to ensure financing is secured before you manufacture goods or provide a service.

Pro forma invoices are frequently used in international transactions, particularly for customs purposes on imports. A pro forma invoice differs from a simple price quotation in that it is a legally binding contract, even if the terms of sale are subject to change.

Pro forma invoices are used by businesses in almost every industry to satisfy their internal purchase approval process. Pro forma invoices simplify the sales process by eliminating additional back-and-forth after a sale has been completed because all terms have been agreed to in advance.

Most pro forma invoices include a specific sale price for the buyer. They include a rough estimate of any commissions or fees, such as taxes or shipping costs. Although the pro forma invoice is subject to change, it is a good faith estimate designed to protect the buyer from any unexpected and significant charges once the transaction is completed.

A company may send a pro forma invoice before or with the shipment of any agreed-upon deliverables. Although it includes the exact cost of the sale, it is not an official demand for payment. There are no rules governing the precise presentation or format of a pro forma invoice, and it may or may not resemble other commercial invoices.