What Is A Proforma Invoice And When Do You Need It?

September 12, 2016 / Reading: 3 minutes

When someone says you need a proforma invoice, it’s essentially just a fancy term that means an estimate or informal evaluation. This is not to be confused with an official invoice, which is what will hold up in the court of law, for example.

This form of invoice, however, is a quick and easy way to show buyers how much an order will cost, without having to go through a lengthy purchase process.

What Makes It A Proforma Invoice?

This document is essentially the non-finalized purchase order, which typically won’t differ from the official document that gets signed, either in-person or electronically, unless there are any taxes or fees that were not accounted for. Proforma invoices are very useful for sellers who get lots of inquiries and need to adjust their offers based on each buyer’s situation or risk.

Related: Download Your Free Proforma Invoice Template

This also comes in handy for when you need to produce a document of an interested party in order to get a third party to extend credit or collaborate in some way. Verbal contracts are useless, yet they are still used every day by desperate businesses who are impatient or naïve.

Again, a Proforma invoice is not evidence of a contractual obligation, it is, however, a proactive step to take to minimize any miscommunication or risk involved in the delivery of goods. This goes for both the buyer and the seller.

How To Generate A Proforma Invoice

First things first: do your homework when calculating your prices of shipping, labor, taxes, insurance, and any fees involved with moving a shipment across borders. Essentially, you’ll want to create an estimate of the most it will cost you to sell your product, and if it ends up costing less, it’s up to you to pass along the savings to the customer or pocket it.

This may sound inaccurate, but that’s not the point of a Proforma invoice, you’re trying to nail the best price that the market will bear and prevent any bartering in the process. Also, make sure you do the following:

  • Make sure that this printout says “Proforma Invoice” at the top, so there is no disputing the purpose. Provide all the necessary contact information in one convenient block underneath the header.
  • Give as much detail into the description of each item listed in the order as possible. Include everything from the weight, dimensions, product number, model, and etc.
  • List your method of shipment and link to their contact information, too. Customers will appreciate any help in finding them the most economical means of shipping.
  • When you tally up the total cost of your services, make sure you double-check things like currency, metrics used to calculate, and the date in which this information is good for.

Final Thoughts

Never create shortcuts in producing your invoices by printing the same document twice and just slapping “Proforma Invoice” on one copy before sending it off. This leaves you open to scams and if the official invoice contains an exact duplicate of all data and filing numbers, it will be useless for any buyer that is trying to secure credit for their purchase. The Proforma invoice should not have a VAT number and you should have language that clearly separates the standard invoice from its previous draft.