A proforma invoice is simply an invoice where the customer requests all the information regarding the payment of goods and services from the seller. A proforma invoice is like a sales quote: it is used to formally define the value of a trade before the deal is concluded. A proforma invoice can be considered as a pre-advice document and serves as a guide to action on what to expect on an export sale.
A proforma invoice is a document of commitment to the part of the seller to sell the goods and services, as stated in the agreement of the buyer for a specified price. Simply put, the proforma invoice is considered as a “Confirmed purchase order” from the seller.
On the other hand, the invoice or commonly referred to as the “Commercial Invoice” is a document used to record the accounts payable by the buyer and records the accounts receivable for the seller. The content of the invoice may, however, be the same as of the proforma invoice.
Why use a Proforma Invoice?
The primary goal of a proforma invoice is to help tighten the export sale. Proforma invoices are especially important when two companies are doing business for export/import transactions together for the first time. Here are some of the advantage of using a proforma invoice:
- Transaction Details: A proforma invoice has all the details of a transaction, so the customer knows what it is they are paying for, leaving no room for surprises. This aspect has helped most companies’ close deals because it helps customers become more comfortable about the terms of the transaction
- Payment: A proforma invoice is usually used by the buyer to secure credit for the purchase of the goods and/or services. If the transaction is of international business, the credit if often issued as a Letter of Credit, which is usually required without which the transaction would never occur.
- Crossing Borders: In most countries, a proforma is usually used to secure customs paperwork, determine shipment values, and consular invoices for calculating customs duties and import tax. With a proforma invoice, one can be able to efficiently process all the necessary paperwork before the shipment leaves the suppliers thereby reducing the total transit time
- Expedite Invoicing: After a proforma has been finalized, a commercial invoice is usually finalized and dispatched to the customers for payment.
How to Create a Proforma Invoice
There are eight basic parts of a Proforma Invoice that you should know of when drafting it.
The first and the most basic part of your proforma invoice is going to be the header. It is crucial that you add in the words “Proforma Invoice” here. You may also include your business name and logo. This way, your client will be able to recognize and find it easily if it mixed up with other documents. Other things to include are the date the invoice was created, the date it was requested, its expiry date, your contact information, mailing address, email address, phone number, country of origin, and your website.
Buyer’s Contact Information
The next step is to include the buyers’ contact information, i.e., name, phone number, mailing address, company name, company email address.
Invoice Number and Dates
Your invoice must be assigned a number. This number will be referenced in all your buyer’s accounting information. An invoice number will also help you in tracking the invoices and ensure that you stay organized.
Reason for Export
Since the proforma invoice is being used to export goods, you will have to explain why you need to export them. Mention if the items are for sale, return, repair, sample, or gift. Also, if the export is temporary, include the words “Temporarily Exported” in your proforma invoice.
In this section, you need to add the mode of transportation, the total number of packages, and the total gross weight of the packages.
Itemized Breakdown of Charges
In this part, break down the shipment details as much as possible. You must be as specific as possible. Most proformas are normally rejected because what was provided either wasn’t important to the buyer or didn’t tell them what they needed to know. The more specific you are, the less chance there is your buyer will choose another supplier.
Tax Shipping and Total Due
Make sure that before calculating the proper sales tax, you have checked the tax laws. Add the necessary shipping and handling charges. For exports, you will have to include the duties levied at customs by either country.
Use the bottom blank part of the proforma invoice to include any additional information, such as your guarantee or your return policy on all the goods sold. You can also use this part to thank the customer for their business.
Download Proforma Invoice Templates
The best and the easiest way to send a professionally designed proforma invoice is by downloading a free proforma template. By downloading a proforma invoice template, you will be able to customize it to fit your specific clients’ needs. A professionally designed template would also go a long way in convincing your client that you dedicated your valuable time and resources to ensure that they get the best goods and or services.
By sending a professionally designed proforma template, you will also be increasing your chances of landing another deal with the same or a referred client as the information provided in the proforma template will be clear, transparent, and easy to understand.
When to Use a Proforma Invoice
There are several business areas where a proforma invoice would come in handy:
- Consulting: unless if you are operating under a retainer contract, consultants must detail the work they complete for their clients each month. A proforma invoice template allows them to pitch their work and corresponding prices to their client ahead of time.
- Contracting: contractors usually have several items to include when pitching their clients about a project, a proforma invoice simply lays everything out for them ahead of project completion and payments.
- Freelancing: at times, freelancers may opt to use a proforma invoice in place of an estimate or a quotation, as they can easily use the same format when submitting their final invoice for payment. This not only saves them time but helps them keep things consistent for their clients.
- Construction: most construction business owners and managers usually use a proforma invoice to detail the materials, time, labor, and more that they will be using for a project. The benefit of this is that they both know the costs upfront.
A proforma invoice helps in streamlining the business processes. Although proforma invoices are not always important, they can be used as an essential part of your sales process. Even though a proforma invoice is like both a quotation and an invoice, it serves its unique function and can easily be created with the aid of an invoice template. A proforma invoice templates are ultimately important in the running of a business as issuing an error-free invoices increase your professionalism, keeps your books in great shape, and facilitates the payment process.