What Is a Pro Forma Invoice and When Should You Use One?

A pro forma invoice is a preliminary bill of sale, issued by a seller to a buyer before the actual delivery of goods or services. It functions as an estimate, outlining proposed transaction details. It is often sent when a buyer has expressed serious interest in purchasing, but the final commercial invoice cannot yet be issued.

Purpose and Function

A pro forma invoice fulfills several roles in business transactions, particularly in international trade. It provides an estimated cost, allowing the buyer to seek internal purchasing approval or arrange financing, such as opening a letter of credit. For imports and exports, pro forma invoices facilitate customs declarations, enabling officials to estimate duties and taxes before goods are formally sold. The document acts as a request for prepayment in some scenarios, setting clear expectations for financial obligations.

A pro forma invoice is not a demand for immediate payment and does not create an accounts receivable for the seller or an accounts payable for the buyer. While it outlines a preliminary agreement, its terms are generally subject to change, meaning it is not legally binding like a final invoice.

Key Information Included

A pro forma invoice includes specific elements detailing the proposed transaction. It lists the seller’s and buyer’s full contact information, including names and addresses. A unique reference number and the date of issue are always present. The core details the goods or services, specifying descriptions, quantities, and individual unit prices, along with the total estimated price.

It also outlines terms of sale, which can include delivery terms, payment terms, and any applicable shipping costs or taxes. For international shipments, details like shipping weight, country of origin, and customs tariff numbers may be included to assist with customs clearance.

Distinguishing from Other Business Documents

Understanding a pro forma invoice clarifies its distinctions from other business documents. A primary difference lies between a pro forma invoice and a commercial invoice. A pro forma invoice is preliminary and provides an estimated cost before a sale is finalized, serving as a quotation or agreement. Conversely, a commercial invoice is a final, legally binding document issued after goods or services have been delivered. It acts as a formal request for payment and a record for accounting purposes. A commercial invoice is entered into accounting records as accounts receivable for the seller and accounts payable for the buyer, and it is mandatory for customs clearance in international trade.

While similar in providing an estimate, a pro forma invoice differs from a mere quote. A quote is often an informal response to an inquiry, providing a loose price estimate without implying a commitment to purchase. A pro forma invoice is a more formalized document issued when a customer has expressed strong intent to buy. It often includes comprehensive details like shipping costs, delivery terms, and payment terms. It signals that prices have been agreed upon, even if final details remain.

A pro forma invoice also differs significantly from a purchase order (PO). A purchase order is a document issued by the buyer to the seller, representing the buyer’s commitment to purchase specific goods or services under agreed-upon terms. Once accepted by the seller, a purchase order becomes a legally binding contract. In contrast, a pro forma invoice is issued by the seller as a preliminary bill or estimate, typically in response to a buyer’s inquiry or before a purchase order is formally placed. It informs the buyer of expected costs and terms from the seller’s side, while the purchase order is the buyer’s intent to procure.