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Proforma invoice: Meaning + downloadable template.
Learn how to use proforma invoices to provide accurate estimates.
Learning how to invoice clients is a foundational part of running a business.
Sending accurate, detailed proforma invoices can promote business credibility and improve client relations.
Creating accurate, professional, and detailed invoices speaks to your professionalism while assuring clients that they’re being billed accurately and fairly. However, the world of invoicing can be a bit tricky, largely due to the varying terminology and different types of invoices, including the proforma invoice.
What is an invoice, and, more importantly, which type of invoice should your business use? In this guide, you’ll learn the meaning of the term “proforma invoice,” discover the benefits of these handy tools, and gain access to a reusable proforma invoice template.
What is a proforma invoice?
A proforma invoice functions like a bill of sale that you send to buyers before shipping their goods or completing the work you’re doing for them. You can send this type of invoice to a client or organization for:
- A promise to perform services
- Internal purchase approvals
- Committing to deliver goods or materials
These versatile documents are most commonly used by trade businesses and in import or export transactions.
Proforma invoices provide your clients with a transparent look at the terms of the sale, helping everyone understand the details of what’s being delivered or provided, as well as pricing and payment conditions.
Many business owners use proforma invoices to declare the value of goods for customs, allowing buyers to arrange for necessary import permits and customs clearance.
As the recipient of a proforma invoice, you can use the document to secure financing and open letters of credit. It acts as a formal quote from the seller without legally binding you to pay until the actual commercial invoice is issued.
If you’re the seller, a proforma invoice can be useful for getting a commitment from the buyer — it gives them all the details they need to make an informed purchasing decision. If you’re the buyer, a proforma invoice can help you better understand the total costs of the transaction, including when payment must be delivered.
How does a proforma invoice work?
The process of creating a proforma invoice is simple. Let’s consider the chain of events as if you were the seller in the transaction.
First, a prospective client will request a quote for goods or services you provide. You’ll prepare a proforma invoice, which will include detailed information regarding:
- The products or services
- Quantities
- Prices
- Any additional costs, such as shipping
- Payment terms
The buyer will review the invoice to ensure that all the details are correct and that the terms are agreeable. If they discover any discrepancies or concerns, they can renegotiate or request amendments to the document.
Once everyone is satisfied with the terms outlined in the document, the buyer will sign it and return it to you. This acceptance indicates their intent to proceed with the order under the specified terms.
At this point, you can process the order or schedule the agreed-upon work. Once you’re ready to ship the goods or have completed the job, you’ll issue a final commercial invoice. The buyer will pay you based on the terms laid out in the final invoice, as it’s a binding document.
Is a proforma invoice legally binding?
A proforma invoice isn’t usually treated as a legally binding document since it functions as a preliminary bill of sale and is issued in advance of the work being performed or the goods being delivered. It’s more of a proposal or written estimate than a true invoice, which means it doesn’t represent a demand for payment.
A proforma invoice is a valuable negotiating tool that helps you and the other party hammer out the fine details of a transaction before you process an order or purchase materials for a project. When considering how long you should keep invoices, you may want to hold on to them for a few years for tax purposes and general record-keeping.
Should you use a proforma invoice?
There are numerous scenarios where a proforma invoice can be beneficial, such as:
- Making an initial offer. A proforma document informs a client about your services or products and their cost.
- Providing documentation for customs. These types of invoices are a great tool for creating a customs declaration when shipping goods overseas.
- Engaging in international trade. Proforma invoices are frequently used to import and export shipments.
Integrating proforma invoices into your billing and proposal strategy can help you provide clients with more detailed information and streamline international shipping.
Downloadable proforma invoice template.
Using our downloadable proforma invoice template offers tons of advantages over creating the document manually for each client. By using our handy template, you can accomplish the following goals:
Save time
Time is money, especially for a growing business. Our carefully designed proforma invoice template can save you considerable time and effort. Instead of making a new document from scratch each time, fill in the necessary details to ensure consistency and reduce the likelihood of errors.
Ensure consistency
Using a template helps maintain consistency across all of your proforma invoices. Producing clean error-free documents speaks to your professionalism and reliability, which can inspire feelings of confidence and loyalty among your clients.
A uniform format also helps repeat clients understand and trust your billing documents. They’ll know what to expect with each transaction and where to look to find important information.
Reduce errors
Manual invoicing can lead to errors, especially when dealing with complex orders involving multiple products or services. A template minimizes these risks by providing a structured format.
You’re less likely to forget critical information like payment terms and item descriptions when you have a solid template. Including all key details prevents misunderstandings and disputes with your clients. Eliminating errors can also reduce the need for corrective measures, such as sending a second shipment to remedy a shortage.
Facilitate compliance
Proforma invoices must often meet specific requirements, especially if they are used for international trade. Our template considers these regulations and includes all the necessary information, helping you stay compliant with various laws and standards.
Additionally, our free template offers complete customizability. You can add fields as necessary to align with the unique customs declaration requirements you and your clients are dealing with.
Improve the customer experience
A clear, well-organized billing document can significantly enhance your customer experience. Clients can make informed decisions quickly when you provide them with a detailed and accurate invoice. This transparency fosters trust and can lead to smoother transactions and better long-term business relationships.
Download this free proforma invoice template and unlock these benefits for your business.
The difference between proforma invoice and final invoice.
Knowing when to use a proforma invoice versus a final invoice involves learning the differences between the two. These documents vary in several ways.
Purpose
A proforma invoice is a preliminary document used to declare your commitment to providing goods or services at specified times. It’s nonbinding and primarily used for customs and financing purposes.
You should send a final invoice after an order has been processed and shipped or after you’ve completed the agreed-upon work. It’s a binding document that requires the buyer to pay based on the completed transaction.
Timing
“Pro forma” is Latin for “as a matter of form,” which is a hint as to the preliminary nature of this type of document.
You’ll send a proforma invoice before shipping goods or rendering services. In some cases, you might send one during the negotiations and proposal stage of a business relationship. Then, send a final invoice after you’ve completed the agreed-upon work or shipped the products to your client.
Legal status
A proforma invoice is not legally binding, meaning you and your client will treat it like a written estimate or quote. By contrast, a final invoice is a legal request for the buyer to remit payment and indicates how much the client officially owes you.
If you’re creating the final invoice, make sure to include specific terms in accordance with your agreement with the buyer. For instance, “Due upon receipt” means the buyer should remit payment to you after receiving the invoice. “Net terms” mean the recipient has a specified number of days to remit payment — Net 30 means they have 30 days to pay you after getting the final billing document.
Content
Both documents will contain similar information, such as product descriptions, quantities, and prices. The final invoice will include actual totals, including any adjustments made during the transaction. It will also reflect your agreed-upon terms and any additional costs incurred during the deal.
For instance, if shipping charges increased between when you issued the proforma invoice and when you actually processed the order, you could include these additional expenses on the final document. Communicate these changes to your buyer for the sake of transparency and mutual trust.
Frequently asked questions.
What is the difference between a draft invoice and a proforma invoice?
A draft invoice is a preliminary billing document used to tally up the costs of a purchase or project. It is used for internal review purposes or to confirm details before issuing a final invoice and to ensure accuracy and completeness within the company.
A proforma invoice is an external document that you provide to the buyer. It’s primarily for customs, financing, and negotiating transaction details.
What is the difference between an ordinary invoice and a proforma invoice?
An ordinary invoice, also known as a commercial invoice, is a final, binding document issued to request payment from a buyer. You’ll send it after you’ve performed the agreed-upon services or delivered the goods the client ordered. It will include the total amount due, the payment terms, and any applicable taxes or fees.
A proforma invoice is generated before initiating a transaction. It outlines proposed terms and gives the buyer a detailed breakdown of projected costs.
Is it okay to pay a proforma invoice?
Generally, you shouldn’t pay a proforma invoice since it’s not a binding request for payment. If you receive a proforma invoice, wait until the seller issues a final commercial invoice to remit payment. You shouldn’t expect payment if you issue a proforma document to a client.
What is the difference between a proforma invoice and a supplier invoice?
A proforma invoice is sent before the actual sale. It is used for informational and decision-making purposes, not payment.
The supplier issues a supplier invoice after the goods have been delivered. It includes the final amounts due and serves as an official request for the buyer to remit payment. A supplier invoice is a form of final invoice that’s only issued by suppliers.
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