What is a Proforma Invoice? Proforma Invoice Review

Proforma Invoice is also called pre-invoice or estimated invoice. It is an informal reference invoice with the name, specifications, unit price and other information of the goods sold, referred to as PI. The seller uses this to let the buyer know in advance the general form and content of the commercial invoice that the seller will issue to the buyer if the two parties make a deal in the future at a certain quantity. It is a freight list of trial calculation nature.

About Proforma Invoice

In some countries, the pro forma invoice can also be used by the buyer as a document to apply for an import license or a foreign exchange quota, and as a basis for the buyer to apply to the bank to pay the seller for the goods and open a letter of credit.

A pro forma invoice is a document that acts as a contract and becomes legally binding after being signed or stamped by both parties before a formal contract is signed. It includes product description, unit price, quantity, total amount, payment method, packaging, delivery date, etc. A pro forma invoice is originally an invoice issued by the seller to the other party for reconfirmation after the customer confirms the price and places an order, but before a formal contract is signed, a pro forma invoice is a contract.

"Proforma" is Latin, which means "purely formal". So if we understand it literally, Proforma Invoice is a purely formal invoice without any actual meaning. This kind of invoice was originally issued by the seller when promoting goods, in order to help the buyer estimate the import cost, assuming that the transaction has been established. In fact, the goods have not been shipped, and for this reason, this kind of invoice is also called "protocol invoice".

A pro forma invoice is not recorded as an account receivable by the seller, nor is it recorded as an account payable by the buyer.

A pro forma invoice is very similar to a sales quotation in that it is used to formally define the value of a transaction before shipping or actually completing the sale.

The pro forma invoice is different from VAT and must be marked with “This is not a VAT invoice”.

effect

1. As a quantitative quotation.

2. As sales confirmation.

3. Allow the buyer to use it to apply for import license, foreign exchange license and letter of credit.

Offer

The most important thing about a pro forma invoice is to clearly list the following items:

1. Name of goods;

2. Quantity;

3. The transaction price method, whether it is FOB, CFR, or CIF, is very important! It is related to the cost and risk sharing;

4. Shipping period;

5. Mode of transportation;

6. Payment method;

7. Detailed bank information of the company.

Note: The above points are just some basic offers. Generally, foreign customers of small-amount trade rarely sign formal export contracts. Proforma invoices often play the role of stipulating the basic contents of the contract to realize the transaction. Therefore, if necessary, the terms that may cause disagreements should be listed in detail one by one, and the buyer should sign back to confirm the terms, so that there will be a basis for the actual execution of the contract in the future. If the proforma invoice is used as a letter of credit, the terms on the letter of credit should be consistent with those on the proforma invoice.

A pro forma invoice is not a formal invoice and cannot be used for collection and negotiation. The unit prices listed in it are merely estimates made by the exporter based on the circumstances at the time and have no final binding force on both parties. Therefore, a pro forma invoice is only an estimate. After the formal transaction and shipment, a commercial invoice must be re-prepared.

use

In practice, if a Proforma Invoice has the content of a quotation and constitutes a legal offer, it can be used to replace a quotation or even as a sales confirmation. Proforma Invoices can also be used in other situations where settlement is required:

1. Used for prepayment of goods, that is, cash payment is required before loading.

2. In the consignment method, the exported goods do not have a definite sales contract, but are placed in the hands of agents. For the agents, the pro forma invoice can be used as a guide for quoting to potential buyers.

3. If it is a bid, a pro forma invoice can enable the buyer to sign a sales contract with many competing suppliers at reasonable prices and sales terms.

In specific operations, a complete pro forma invoice must include the payment method (T/T, L/C, T/T plus L/C, collection payment, etc., and the amount of the deposit and the remaining payment must also be stated), the port of destination, and relevant information of the goods.

Difference from Commercial Invoice

The difference between a pro forma invoice and a commercial invoice is that the word "pro forma" is on the invoice. This invoice can be used as an invitation for the buyer to place a firm order. The invoice usually states the price and sales terms, so once the buyer accepts these terms, the contract can be signed according to the content of the pro forma invoice.

Since the pro forma invoice specifies the import price and related fees in detail, some countries stipulate that a pro forma invoice can be used to apply for an import license or to declare the price of goods to the customs.

sample

question

1. The amount of the pro forma invoice is uncertain.

2. The nature of the pro forma invoice is unclear.

3. There are hidden dangers in using a pro forma invoice instead of a contract.