How to Create a Proforma Invoice For Your Business

A proforma invoice serves as a preliminary bill of sale, or a detailed quotation, issued by a seller to a buyer before goods or services are delivered. It outlines the estimated costs, terms, and conditions of a proposed transaction. This document is not a final invoice and does not demand payment, nor is it recorded in accounting books as a binding financial transaction. Instead, it provides a clear understanding of the anticipated sale, helping both parties agree on the specifics before a formal commitment.

Essential Components of a Proforma Invoice

The seller’s full details, including name, address, and contact information, must be present to establish clear identification. Similarly, the buyer’s complete name, address, and contact information are needed for proper communication and accurate record-keeping.

A unique invoice number should be assigned to the proforma, along with the date it was issued. A detailed description of the goods or services being offered is also required, specifying quantities, unit prices, and the estimated total amount. This ensures clarity on what is being provided and its preliminary cost.

Payment terms, such as an estimated payment in advance or upon delivery, should be clearly stated. Delivery terms, often incorporating Incoterms like “Free Carrier” (FCA) or “Delivered at Place” (DAP), define responsibilities for shipping costs and risk transfer, and an estimated delivery date should be included. Incoterms are a set of internationally recognized rules published by the International Chamber of Commerce (ICC) that clarify responsibilities for costs, risks, and tasks associated with the delivery of goods. The proforma should also specify a validity period. Any applicable estimated taxes or estimated shipping and handling costs should be itemized to provide a full cost estimate.

Step-by-Step Creation Process

Businesses can choose from various formats, including using pre-designed templates in word processing software, utilizing spreadsheet programs like Microsoft Excel, or employing accounting software with built-in invoicing features. Online invoice generators also offer a streamlined way to produce these documents.

The process involves inputting the collected seller and buyer details, the unique proforma invoice number, and the issue date into the chosen format. The detailed description of goods or services, including quantities and unit prices, should be entered accurately into designated fields. All estimated costs, such as the subtotal, any applicable discounts, shipping charges, and taxes, are then calculated to arrive at the estimated total amount.

Reviewing the entire document for accuracy, clarity, and completeness before sending it to the buyer is an important step. Ensuring the layout is clean and professional enhances readability and avoids misunderstandings. Including any specific notes, special instructions, or terms and conditions, along with the currency used and the validity period, further refines the document.

Common Uses and Scenarios

Proforma invoices are frequently used to provide a detailed quotation to a potential customer before a sale is finalized, acting as a good-faith agreement that outlines estimated costs and terms. This allows the buyer to review the proposed transaction and make an informed decision without a binding commitment.

In international trade, proforma invoices are often used to facilitate customs declarations for shipments. They provide customs officials with the necessary information to determine potential duties or tariffs, aiding in smoother clearance processes. The U.S. Customs and Border Protection may require sufficient information on the proforma to examine goods and assess duties.

Businesses also utilize proforma invoices to obtain import licenses or permits. They can also be instrumental in requesting advance payments or deposits from clients, especially for custom orders or large projects. Additionally, some businesses require proforma invoices for their internal purchasing approval processes.