If you’re into the eCommerce or retail sector, you must have heard of Proforma invoice. For those who don’t know, “Pro forma” is a Latin term that translates to “as a matter of form” and is offered to the buyers as an informal gesture of courtesy and not as a document. This is a detailed guide that will help you understand everything about proforma invoice, from its significance and benefits to the situations when it is used. So, if you’re interested in learning more, keep scrolling!

A proforma invoice serves as a great negotiating tool for customers as well sellers.

What Is a Pro Forma Invoice?

The interesting thing about a proforma invoice is that it isn’t really an invoice. Instead, it is a precursor sent before the actual invoice. Businesses and enterprises use proforma invoices at the time of offering quotes of their products or services to their potential customers. These invoices are used to provide the customers with a rough estimate of the final cost of the deal.

When used, the proforma invoices are to be sent before the actual delivery of goods or services. They are especially useful for the businesses that operate in the global markets as they offer necessary shipment details to the customers about the transaction such as the type, quality, quantity, weight, price, etc. of the goods.

How Does A Pro Forma Invoice Different From The Regular Invoice

While there are many similarities between a regular invoice and a Proforma Invoice, they’re totally different documents.

Both provide basic details of the exchange such as the quantity and price of items, shipping details. However, there are so many differences that are mentioned below :

Pro forma Invoice Vs Regular Invoice

• A proforma invoice is a non-binding document that is used only for an informational purpose. On the other hand, a regular invoice is a binding document that obligates a customer to pay for the goods he received.

• A proforma invoice is always sent before the delivery of goods or services, whereas a standard invoice is sent after the goods or services are received successfully.

• The final pricing and terms are negotiable in the case of a proforma invoice, but not in a regular invoice.

• A proforma invoice is not recorded in the accounting system, whereas a final invoice needs to be there in the

accounting records.

• A proforma invoice is only valid for a limited time, whereas a standard invoice remains valid until all the terms have been fulfilled.

Benefits of Using Proforma Invoice

While a proforma invoice is not a compulsory document and not always required, it serves many benefits. Some of these are as follows :

1. Provides The Customers With Relevant Details Before The Final Delivery

A proforma invoice provides your buyers with all the necessary details before the final delivery of goods and services. This information includes the type, quality, quantity and cost of the goods along with their terms and conditions. It encourages them to make final decisions in your favour.

2. Encourage Commitment Of The Buyer as well as The Seller

Another great benefit of sending a proforma invoice is that it boosts the level of commitment between the buyer and the seller. While it is not a binding document, it indirectly builds a bond between the involved parties.

3. Helps in Negotiating

Because a proforma invoice offers all the necessary sales details to the buyer, it presents a good opportunity for both the customer and the supplier to negotiate in terms of final price or proposer terms.

When You Should Use a Proforma Invoice Over a Regular Invoice?

A proforma invoice can never be used as an alternative to a standard invoice, but it can be used as a supportive document alongside it. As discussed earlier, it is not at all mandatory to send a proforma invoice, but it can be very helpful under the following circumstances :

1. When There Is A Requirement For A Provisional Bill of Sales

A proforma invoice offers your customers an in-depth description of the sale before it actually takes place. This information can be very valuable for your customers as it helps them in making informed decisions.

2. When Dealing With International Customers

One of the biggest uses of a proforma invoice is for international shipping purposes. Since it contains all the necessary details of the sale, it helps businesses to gain the trust of their audience.

3. When Shipping Items On Consignment

Shipping on consignments is a tricky matter because you can only issue invoices for the goods that are sold. This is when a proforma invoice becomes very useful. It allows you to send an informal estimate of items that are shipped. It offers you an opportunity to send the final invoice after the goods are successfully sold.

A proforma invoice is a very useful supporting document that mimics the final invoice without binding the buyer to the seller. Instead, it offers all the necessary sales information that helps a buyer in making better judgments. If you want to send it to your customers, download proforma invoice format here.