What Is a Proforma Invoice and How to Make One?

A proforma invoice functions as a preliminary bill of sale, sent to a buyer before the actual goods or services are delivered. Its primary purpose is to outline the exact cost, quantity, and other terms of a proposed transaction. Businesses use a proforma invoice when they need to provide a formal quote or declare value for customs purposes prior to a final sale. This document differs from a standard commercial invoice, which is issued after goods or services have been delivered and serves as a formal request for payment.

Essential Information for a Proforma Invoice

A proforma invoice must clearly display the seller’s complete details, including the business name, physical address, and contact information. Similarly, the buyer’s full name, shipping address, and contact information are necessary. Each proforma invoice requires a unique invoice number and the date of issue for tracking and referencing.

The document must prominently feature the title “PROFORMA INVOICE” at the top to distinguish it clearly from a commercial invoice or a simple quote. A detailed description of the goods or services is essential, specifying each item, its quantity, and the unit price. This allows the buyer to understand exactly what is being offered and at what cost.

The total amount due must be clearly stated, including the applicable currency. Proposed payment terms, such as “Net 30” or “payment in advance,” and delivery terms, like “FOB” (Free On Board) or “CIF” (Cost, Insurance, and Freight), provide the buyer with important information about the transaction’s logistics and financial obligations. Including a validity period for the quote indicates how long the stated prices and terms will remain in effect.

Steps to Create a Proforma Invoice

Creating a proforma invoice involves assembling the necessary information into a structured document. Businesses often choose to use accounting software, which can automate the process, or utilize online templates. Alternatively, a proforma invoice can be manually prepared using a spreadsheet program or a word processor.

The document should be structured, beginning with a header that includes the “PROFORMA INVOICE” title, the seller’s and buyer’s details, and the invoice number and date. The main body will then detail the goods or services, presenting item descriptions, quantities, and unit prices. A footer section should follow, displaying the total amount due, payment terms, delivery terms, and any other relevant conditions like the quote’s validity period.

Ensuring the clarity and accuracy of all entered data is important to prevent misunderstandings. Double-checking item descriptions, quantities, prices, and totals helps maintain professional standards and builds trust. Professional formatting and presentation, such as using clear fonts and a logical layout, enhance the document’s readability and overall professional appearance.

Role and Handling of a Proforma Invoice

A proforma invoice is issued when a buyer requests a formal quote for goods or services, especially before a firm order is placed or payment is made. It serves as a declaration of value for customs purposes, particularly in international trade, allowing goods to clear borders even before the final commercial invoice is generated. This document can also facilitate internal approval processes within a buying organization.

The proforma invoice is not a legally binding demand for payment; rather, it is an offer or an estimate. It facilitates the pre-payment or pre-shipment process by providing the buyer with details needed to arrange funds or prepare for receipt of goods. In many international transactions, a proforma invoice is required by banks to process letters of credit or other forms of pre-payment.

Its use in international trade extends to customs declarations, where it provides customs authorities with an estimated value of the goods being shipped, even if the final sale has not yet concluded. Once the buyer agrees to the terms, makes payment, or the transaction is formally confirmed, the proforma invoice transitions into a final commercial invoice. The commercial invoice then serves as the official record of the sale and the formal request for payment.