What Is a Pro Forma Invoice? Its Purpose and Uses

A pro forma invoice is a preliminary bill of sale sent to buyers before a transaction is finalized. It outlines proposed goods or services, quantities, and prices, serving as an estimated cost. This non-binding agreement clarifies transaction terms before payment or shipment. It helps both parties confirm expectations and prepare.

Purpose and Common Uses

A pro forma invoice provides a preliminary quote for goods or services. It is useful when a buyer needs to arrange financing, secure budget approvals, or obtain import licenses before committing to a purchase.

Pro forma invoices facilitate pre-payment or deposit requests, especially for custom or large orders requiring payment before production or shipment. This secures financial commitment from the buyer before the seller incurs significant costs. For international trade, it is used for customs declarations, allowing goods to clear customs before the final commercial invoice or payment. It details the shipment’s value for regulatory purposes.

Key Information Included

A pro forma invoice is clearly labeled to distinguish it from a final invoice. It includes seller and buyer names, addresses, and contact information. The issue date is displayed, providing a timeline for the proposed transaction.

It details goods or services, including item names, quantities, and unit prices. An estimated total cost is provided, often showing taxes, shipping, and other charges. Payment terms (e.g., deposit percentage, payment timeframe) and delivery terms (e.g., Incoterms) are specified.

Distinguishing from Other Documents

A pro forma invoice differs from a commercial invoice. A commercial invoice is a binding legal document issued after goods are shipped or services rendered, serving as a demand for payment. Conversely, a pro forma invoice is issued before these actions, acting as a preliminary, non-binding declaration of intent and estimated costs.

While similar to a quote or estimate, a pro forma invoice is more formal and detailed. It includes payment terms, shipping details, and its non-binding nature, making it suitable for customs declarations or internal procurement. A sales order is an internal document generated by the seller to confirm a customer’s purchase and initiate fulfillment. A pro forma invoice, by contrast, is an external document shared with the buyer to outline transaction details before a sales order or commercial invoice is issued.

When and How to Use

Sellers issue a pro forma invoice to provide a formal estimate to a potential buyer, especially before manufacturing custom goods or requesting upfront payment. It confirms order details and expected charges, allowing the seller to begin production or prepare for shipment once the buyer agrees. For international trade, sellers use it to provide customs authorities with a value declaration for goods not yet sold or shipped, facilitating smoother export.

Buyers use a pro forma invoice for internal budget approvals or securing import licenses. It provides financial information for these administrative processes before the final purchase. Buyers also use it to arrange financing with banks, as it outlines the transaction’s value and terms, helping them prepare for the commercial invoice and payment.

Purpose and Common Uses

A pro forma invoice provides an initial quote for goods or services. It helps buyers arrange financing, secure budget approvals, or obtain import licenses before purchase. It ensures buyers understand expected costs and terms.

It also facilitates pre-payments or deposits, particularly for custom or large orders requiring payment before production or shipment. This secures the buyer’s financial commitment. In international trade, pro forma invoices are used for customs declarations, enabling goods to clear customs before the final commercial invoice or full payment. They detail shipment value for regulatory purposes.

Key Information Included

A pro forma invoice is clearly labeled to differentiate it from a final invoice. It lists the seller’s and buyer’s names, addresses, and contact information. The issue date is displayed, providing a timeline for the transaction.

The document details goods or services, including item names, quantities, and unit prices. An estimated total cost is provided, often itemizing taxes, shipping, and other charges. Payment terms (e.g., deposit percentage, payment timeframe) and delivery terms (e.g., Incoterms) are specified.

Distinguishing from Other Documents

A pro forma invoice differs from a commercial invoice. A commercial invoice is a binding legal document issued after goods are shipped or services rendered, serving as a demand for payment. In contrast, a pro forma invoice is issued beforehand, acting as a preliminary, non-binding declaration of intent and estimated costs.

While similar to a quote, a pro forma invoice is more formal and comprehensive. It includes payment terms, shipping details, and its non-binding nature, making it suitable for official uses like customs declarations or internal procurement. A sales order is an internal document for confirming a customer’s purchase and initiating fulfillment. Conversely, a pro forma invoice is an external document shared with the buyer to outline transaction details before a formal sales order or commercial invoice is issued.

When and How to Use

Sellers issue a pro forma invoice to provide a formal estimate to potential buyers, especially before manufacturing custom goods or requesting upfront payment. It confirms order details and expected charges, enabling the seller to begin production or prepare for shipment once the buyer agrees. For international trade, sellers use it to provide customs authorities with a value declaration for goods not yet sold or shipped, streamlining export procedures.

Buyers use a pro forma invoice for internal budget approvals or securing import licenses. It provides financial information needed for these administrative processes before the final purchase. Buyers can also use it to arrange financing with banks, as it clearly outlines the transaction’s value and terms, aiding preparation for the commercial invoice and payment.