Pro Forma Invoice

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Meaning and definition of Pro Forma invoice

Pro forma invoices are used by various businesses in almost all industries. A pro forma invoice can be referred as an introductory bill of sale sent to buyers in advance of a shipment or delivery of goods. Generally, it provides a description of the items purchased, notes the cost, as well as other important info like shipping weight and transport charges. The pro forma invoice is usually used for customs purposes on imports. As expressed by Investopedia, a pro forma invoice is different from a simple price quotation for it is generally considered a binding agreement, in spite of the fact that, akin to a price quote, the terms of sale are likely to be changed.

The need for using a Pro forma invoice

A pro forma invoice is used for offering a preliminary product price quotation, before the actual sale that specific product. Besides, it might also be used to provide the potential buyer with additional details about the product. However, there are a few more reasons that a seller or buyer might need to use a pro forma invoice. Some important ones are mentioned below:

  • Export and import

Complex trade transactions might involve the trade parties to use a pro forma invoice for clarifications. For example, if one country purchases goods from another country, there might be currency and exchange rate issues. These issues would be clearly explained by using a pro forma invoice.

  • Custom duty calculations

Pro forma invoices might also be useful in computing the projected cost for customs duties when the goods are crossing borders. It is always better to avoid surprises in trade exchanges. The pro forma invoice aims at addressing all factors that might be caught up in specific trade obligations.

  • Clarification and contact details
Pro forma invoice is suggested as a source of contact between the buyer and the seller. It must be aptly recognized for what it is with a clear label about the pro forma on the top of the invoice. It is a significant source of info, such as the info about the buyer and the seller. Through the use of a particular date on pro forma invoice, the seller could alter the final invoice to replicate the new dynamics. 

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