Invoice management, however dull, is a critical task a business has to attend to day in and day out. Getting it right is vital for managing cash flow, which makes it worth knowing which kinds of invoices are used and when. The proforma invoice is a significant part of the invoicing process — and the part with the most ambiguity around it. What is a proforma invoice, and when should you use one? Here is the detail.
What is a proforma invoice?
A proforma invoice is a provisional bill of sale, sent to the customer by the seller before the goods or services are actually delivered.
Typically a proforma invoice created in invoice software contains the date of issue, descriptions of the items sold, and the amount payable including any taxes or fees applicable to the transaction between issuing the document and making the delivery.
With it, the seller tells the buyer what charges to expect, so there are no surprises later. It is treated as a commercial agreement — but its terms can still be altered, and it does not carry a sequential invoice number.
When should you use a proforma invoice?
There are two core reasons to send a provisional bill of sale ahead of the actual sale. First, because you want the buyer to know the cost of what you are selling in advance. Second, because you are shipping an order internationally.
1. Giving the buyer a cost estimate
Also known as a good faith agreement, a proforma invoice between buyer and seller sets out which items are being sold and the total to expect. It does not mean you are requesting payment.
It is a tool for giving the buyer a cost estimate — and the buyer keeps the right to change the order.
2. International shipping
International shipments need certain details recorded, and a proforma invoice carries them: shipping, packaging, weight and delivery fees. Declaring the value of the goods being shipped internationally is mandatory for passing customs, and having it on the document speeds up clearance so the delivery can be made quickly.
Getting the document right
To get the full benefit of a proforma invoice — and to produce an accurate one — you need reliable billing software behind it. The proforma serves as the tool for making good-faith agreements with your buyers, and having it in the same system as the rest of your invoicing makes for a more profitable business. See proforma invoices for what the document covers, and create an invoice for the real invoice that follows it.