Everything you need to know about Pro Forma Invoice

A proforma invoice is a provisional bill of sale given to buyers prior to the shipment or delivery of goods. Typically, the invoice will describe the purchased items as well as essential information such as shipping weight and transportation rates.

Recognizing Pro Forma Invoices

Pro forma invoices are mainly used in international transactions, particularly for customs purposes. Pro forma invoices are used by businesses in almost every industry to satisfy their internal purchase approval process. Pro forma invoices simplify the sales process by eliminating additional back-and-forth after a sale has been completed because all terms have been agreed to in advance.

Particular Considerations

A traditional commercial invoice must include important information such as the buyer and seller, a description of the goods, the quantity, the total value of all shipped items, and the purchase location. A pro forma invoice only requires enough information to allow customs to determine the necessary duties based on a general checking of the purchased commodities. A pro forma invoice used for customs purposes must submit a commercial invoice within 120 days.

Example of a Pro Forma Invoice

A commercial invoice documents a sale that has already occurred between the parties. A pro forma invoice may be used by the selling firm if the transaction has not yet occurred. A pro forma invoice may also be used if the terms of the sales contract state that full payment is not payable until the buyer receive certain goods.

Components of a pro forma invoice?

Most pro forma invoices include a specific sale price for the buyer. It contains a rough estimate of any commissions or fees, such as taxes or shipping costs. Although the pro forma invoice is subject to change, it serves as a reasonable faith estimate to protect the buyer from any unexpected and significant charges once the transaction is completed.

Purpose of pro forma invoices?

Pro forma invoices are mostly used in international transactions, particularly for customs purposes on imports. Pro forma invoices are used by businesses in almost every industry to satisfy their internal purchase approval process. Pro forma invoices simplify the sales process by eliminating additional back-and-forth after a sale has been completed because all terms have been agreed to in advance.

When should pro forma invoices be sent?

Before shipping any agreed-upon deliverables or shipped items, a company may send a pro forma invoice. While it contains the exact cost details for sale, it is not an official demand for payment. There are no rules dictating how a pro forma invoice should be presented or formatted.

How are commercial invoices and pro forma invoices different?

The traditional commercial invoice must include important information such as the buyer and seller, a description of the goods, the quantity, the total value of all shipped items, and the purchase location. A pro forma invoice only requires enough information to allow customs to determine the necessary duties based on a general examination of the included goods. If a business uses a pro forma invoice for customs, it must submit a commercial invoice within 120 days. Visit here to learn about what is GST.

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