Business

What is a proforma invoice? When and why should you use one?

Panna Kemenes

15.10.21 (updated more than 1 year ago)

Read time 3 minutes

There are times when a business needs a record of an order before the sale has been processed and goods or services delivered. A proforma invoice serves this purpose.

But what is a proforma invoice?

This article will cover what a proforma invoice is, plus when and how to use one.

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What is a proforma invoice?

Proforma invoice definition

A proforma invoice is a document provided before or with a shipment of goods.

It describes the items and terms of sale, but does not serve the function of a real invoice. It can act as an estimate or quotation for the customer – but not the final bill for payment.¹

What is the difference between a proforma invoice and an invoice?

An invoice is a document that specifies any products sold or services provided to a customer for a particular period. It acts as a notification that the customer should pay.

A proforma invoice is usually issued before the sale takes place. It is commonly used in export sales, where payment is not yet required.

Proforma invoices provide an estimate or quotation for goods or services before they are shipped or provided but only once the customer has demonstrated commitment to a specific price. It does not mean the invoice is due for payment.

Proforma invoices cannot be used to request or make payment. A full invoice is needed before the buyer makes payment.

invoice vs proforma invoice

What is a proforma invoice used for?

A proforma invoice is often issued by businesses in the international import and export industry.

Import taxes and duties

If a final invoice is not available, the seller can provide a proforma invoice for customs use. Officials can use this to determine the US import taxes and duties due.

This could include any shipments from international suppliers, in the UK or Europe for example, into the US.

For example, if you are buying a large batch of materials for your business from overseas, you can usually get your supplier to send the proforma invoice before the delivery. You can then let US Customs and Border Protection (CBP) or your courier know the details beforehand, and pay the charges before the goods arrive in the US. This can save you time spent waiting for US customs.

Customs

The proforma invoice can also be used for US customs clearance.

US customs rules for importing goods into the US state:

“If no invoice or bill is available, a proforma invoice must be filed, and must contain sufficient information to determine admissibility, classification, and the amount of duties due.”

The company must produce the full commercial invoice within 120 days.²

Setting clear expectations for customers

A proforma invoice can also help the purchaser decide whether to go ahead with the order. It can act like a quotation for consideration. They will also not be hit with any unexpected fees once the invoice arrives, as the proforma invoice will have already given them an estimate.

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manage expectations with a proforma invoice

What information should be added to a proforma invoice?

No formal guidelines dictate the exact presentation or format of a proforma invoice.

However, it should include some specific pieces of information. This is especially important when used for customs clearance.

Proforma invoices should contain:

Date, and expiration date, of the proforma invoice.
Company and contact details for the seller and the buyer.
Seller's invoice number.
Details and quantity of products (for customs, this should include country of origin and the product classification).
Shipping details (including method of dispatch, port of loading, and discharge).
Payment terms and estimated total due.

Proforma invoice template and example

There is no fixed standard for proforma invoices. Following a template or example can be helpful to ensure you include all the relevant information. If they are required for customs, missing information can lead to delays.

Wise provides several templates for invoices in different formats.

The following adapted example shows a typical proforma invoice:

proforma invoice example

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Wise offers a multi-currency business account, allowing you to get paid in different currencies. You can also transfer and convert your money when it suits you, all in one place, at the real mid-market rate.

You can benefit from having up to 10 local bank account details. This means you can have a UK account number and sort code, for example, even as a US citizen. Customers can pay in their local currency, which can help you get paid faster.

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Wise Business also provides downloadable free invoice templates to make life easier. So next time someone asks 'What is a proforma invoice?', you can show them your own example.

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Sources:

All sources checked 15 October 2021.

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