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A business journey from sourcing the client to the final lead close requires a smooth flow. There are many crucial factors to revise when finalizing any business deal. Discount, selling price, and delivery date are some of these important factors. After proper agreement on the above factors, the seller sends a suitable draft known as a Proforma invoice.
The full form of Pro Forma is “for the sake of form.” in the Latin language. It implies the follow-up of an official document. Many people confuse it with a Pro forma invoice and consider it a usual general invoice.
Here, we will explore everything about proforma invoices, their purpose, and key elements while generating them.
What Is a Proforma Invoice?
The invoice which is sent to the buyer before the confirmation of the sale is known as a proforma invoice. It includes highlights such as discounts, shipping information, services or goods, and the delivery date. Also, it includes shipping costs and additional charges.
Key highlights about a proforma invoice:-
- Pro forma invoices are always shared before the goods or services delivery.
- There are guidelines for proforma invoices that dictate the exact format.
- It only includes general information to let customers know the duties applicable to the goods shipment.
After receiving this invoice, the buyer confirms the above agreement, and the buyer proceeds to the goods or services delivery.
For International Shipping
In the US, there is a requirement for specific documentation before goods can pass through customs. In international shipments, there is no requirement for pro forma invoices. However, it is useful when there is a need for an estimate before the final transaction. It must cover all the entire foremost points reflecting the duties as mentioned below.
- Estimated price
- Description of the product and its quality
- Proforma invoice number
- Product quantity
- Mode of payment
- Expected delivery time
For the other transaction
Pro forma invoices for national and other transactions must include all the important points. This kind of invoice can cover the details even if the agreement is disconfirmed.
A pro forma invoice details are as follows:
- Pro forma invoice instead of invoice
- Proforma invoice number
- Transaction date
- Service or product description
- Quantity
- Cost
- Date of delivery
- Shipping cost
- Any other statement of the customer and seller
What Is the Objective of a Proforma Invoice?
After unlocking the answer to what is a proforma invoice, let’s understand its significance. The intention of a proforma invoice is to boost transparency in the deal. The seller shares a proforma invoice with the buyer to agree on various deal factors. It also shows an estimation of payment to the client.
Pro forma invoice also puts forward a chance of negotiation for the buyer. A client can easily contact the seller and urge negotiation before final agreement on the cost. Apart from cost, clients can also discuss products, services, or the delivery date in case of dissatisfaction.
A proforma invoice provides a proper breakdown of costs. Business owners can also include the additional charges which are applicable during the transaction.
A proforma invoice also enables buyers to make their financial planning. It enables buyers to determine whether the deal is aligned with their investment or not. Thus, it is beneficial for buyers to plan for an investment.
This invoice is also good for international trading. It ensures the fulfillment of regulations and enables smooth goods transportation across the globe. It refines international dealings and prevents confusion or problems.
Proforma invoices play a vital role in smoothing the selling process. It provides acceptable clarity and transparency.
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When to Use a Proforma Invoice?
After understanding the proforma invoice meaning, lets understand the scenario where it is applicable well.
Shipping
The seller must offer a proforma invoice before sending the shipment abroad. It helps obtain the necessary export permission from the local authorities. Meanwhile, custom agents can also use it to classify commercial invoices.
Advance Payment or Deposit
A proforma invoice is helpful when payment requests are for bulk orders. This document complies with the buyers’ agreement on costs and other details.
Invoicing Abroad Customers
Suppliers need a detailed proforma invoice when selling goods overseas. It ensures the smooth transaction of goods.
Acquire Finance or Credit
Suppliers need to issue an official pro forma invoice. It includes all the crucial information about the goods and services.
Why do Businesses Consider Proforma Invoices?
Businesses utilize proforma invoices in the business documentation drafts form. It’s not a legal document or a requested document for payment from the buyer’s side. Reasons why businesses opt for a proforma invoice are as follows.
- To acknowledge the client about the estimate, service, and delivery date.
- To give a negotiation chance to the buyer.
- Saving processing time and costs.
- To smooth quote cash flow.
- Produce transparency between buyers and sellers on all the outline points of the trading.
- To establish a strong and long client relationship because it acts as a good faith agreement.
- Buyers can easily make an internal approval of the purchase.
How to Create a Proforma Invoice With the Moon Invoice?
Moon Invoice is a platform that offers various invoice templates for different purposes. It makes the invoicing process effortless with all in-built templates for the user. This invoice software helps to manage invoicing anytime and anywhere.
After uncovering the statement on what is a pro forma invoice, we now focus on its making. To generate a proforma invoice, first, you need to log in with your login details on the Moon Invoice site/app. You can make an account with some basic information if you haven’t joined Moon Invoice.
After logging in, you will be able to explore numerous proforma invoice templates. You must choose the one that is highly satisfying for your needs and download it. There is no need to download the complete software for invoice making. To accomplish the process, you need to follow the below steps.
- Navigate to the left side to the SALES Option and then click on the PROFORMA INVOICES option
- Click on the Create a new Proforma Invoices option on the middle side
- Fill in the details like customer name, proforma invoice number, date, address, and shipping method.
- Set the currency of your country
- Also, add the product details like quantity, rate and tax, discount and amount.
- Mention your business terms and conditions
- Add the attachment of any further information
- Review the details to avoid mistakes
- Click the SAVE button
You can easily create a proforma invoice by following the above steps. Furthermore, you can send the invoice through email or take the hard copy and dispatch it to the client’s address.
You can also download the free templates easily by visiting the proforma invoice template at Moon Invoice. It simplifies the invoice-making process by easily downloading ready-made templates. They are handy to keep human errors at the bay and lead to an accurate invoice.
Mistakes to Avoid While Making a Proforma Invoice
A proforma invoice is never a legal document. However, it is essential to create error-free invoices to keep issues at bay that may arise. While generating a proforma invoice, a seller must include the correct cost and description of the service. The information should be complete while covering all the crucial points.
The cost calculation should be correct. Any miscalculation could create a problem in the future. Also, it can create an unfavorable impression on your clients. The calculation should include all the crucial elements. Sellers must be aware of the current price and consider the same while calculating the cost.
The seller must contain all the terms and conditions in the sample proforma invoice. Delivery schedules, warranty terms, and other policies come under this scenario.
Sellers must cross-check and review the invoice. This helps in detecting and fixing the issue early before sharing it with the client.
Proforma Invoice Examples
To understand the proforma invoice well, we take the following examples.
Suppose a jewelry professional receives a bulk order for a piece of jewelry. Without further confirmation about the cost and other details, the designer completed the order and sent an invoice. What could be next?
- The client is not satisfied with the cost
- The delivery date is out of customers’ expectation
In this case, the seller can still make a deal and proceed further. But this approach can give the wrong direction to the business.
In contrast to this situation, suppose a professional sends a pro forma invoice to the client before finalizing the deal after the discussion. This proforma will consist of estimated prices, product descriptions, and delivery dates. The seller will proceed with jewelry making upon receiving acknowledgment of the same from the client side.
The client can raise a negotiation request or discuss the product and delivery date in such a scenario.
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What’s the Difference Between an Invoice and a Proforma Invoice?
Proforma and commercial invoices are different in terms of the information they contain and their respective purposes. Let’s understand them one by one.
Proforma invoice
A proforma invoice is an invoice that represents an estimate to the customer. It is generally issued before service or product delivery.
Commercial invoice/General invoice
This kind of invoice is for the payment request that the seller generates for the buyer. It is sent after service or product delivery.
| Proforma Invoice | Commercial Invoice |
|---|---|
| Pro document sent prior to the service delivery | Final document which is sent after the goods/service delivery |
| Its core goal is to give cost estimate to the client | Its main purpose is to request for the payment from client side |
| Not a legal document | Legal document |
| Do not contain detailed information | Contains detailed information |
| It can be revised | It cannot be revised |
| It is not so important in accounting | It is important for the accounting purpose |
| The validity period is short | There is no specific validity period |
| Prepared and sent before the service or product delivery | Prepared and sent after service or products delivery |
Last Words
Hope you got ample knowledge while unlocking the answer to what is a proforma invoice. It is a perfect approach to smoothen your trading process and gives a new height to your business. Proforma invoices are up to the mark for establishing transparency and clarity between buyers and sellers. It’s not a legal document but carries importance for building a robust trading relationship. Generating pro forma invoices is also easy with Moon Invoice. The right platform to explore many sample proforma invoices and accelerate the invoice process.
