A proforma invoice is an invoice which sets out the terms of the sale and payment arrangements which will be required after completion of the sellers part of the deal. For example, if payment for goods is to be supplied against payment by letter of credit then the pro forma invoice will be sent to the buyer then taken by him to the bank which opens the letter of credit.
The bank will prepare a letter of credit setting out the required documents against which payment will be made. Then the commercial invoice (the one actually being paid against and being entered in the sellers accounts) will be submitted to the bank with other required documents and if all is in order the bank will make payment against that commercial invoice.
In short, a proforma invoice is like a draft invoice from the seller subject to approval by the buyer. A Proforma invoice is an invoice provided by a supplier in advance of providing the goods or service. A quotation in the form of an invoice prepared by the seller that details items which would appear on a commercial invoice if an order results.
Proforma invoices basically contain much of the same information as the formal quotation, and in many cases can be used in place of one. It should give the buyer as much information about the order as possible so arrangements can be made efficiently. The invoices inform the buyer and the appropriate import government authorities details of the future shipment; changes should not be made without the buyer’s consent.
As mentioned for the quotation, the points to be included in the proforma are:
1.Seller’s name and address
2.Buyer’s name and address
5.Prices of items: per unit and extended totals
6.Weights and dimensions of quoted products
7.Discounts, if applicable
8.Terms of sale or Incoterm used (include delivery point)
9.Terms of payment
10.Estimated shipping date
When a buyer asks for a quotation the seller should always provide a pro-forma invoice. A pro-forma invoice is an invoice sent in advance of the commercial invoice, which is the final bill that the buyer agrees to pay. Some of the advantages of pro-forma invoice to the importer include to show to his government for foreign currency allocation, opening letters of credit and most importantly, to have a detailed information on the transaction that can help him plan. An accurate and professionally submitted pro forma-invoice can help buyers to make a decision and agree to the quotation.