Creation Process of Proforma Invoices and its Uses

If you are a business owner or work for a business that offers goods and services to clients, then it is important to understand the various types of invoices you may encounter. A proforma invoice stands out from other types because it isn’t a payment request. Knowing how to write proforma invoice is essential for anyone in business.

The term “Pro Forma” comes from the Latin phrase meaning “for the sake of form”. It refers to the procedure of following an official document. Many people mistakenly confuse it with a standard invoice, thinking it is just a regular invoice.

In this article, we will be going to see what is proforma invoice is, how to create it, provide aa template and example to help you to make your own.

What is a Proforma Invoice?

A proforma invoice is a legal document that a business provides to a customer or client, dealing with the expenses involved in a formal agreement. Sometimes it is called a “pro forma” invoice. Unlike a regular invoice, a proforma invoice is not a request for payment but rather an agreement on the costs. Proforma invoices are especially helpful for businesses that ship goods, particularly internationally, as they allow customs to estimate the value of goods for shipping. They can also be useful for domestic shipments to other companies.

It provides a detailed description of the goods, the total due amount, and other relevant transaction information. It acts as a “good faith” agreement between the seller and the customer, helping the buyer understand what to expect in advance.

For example, if payment is required upfront to secure financing before producing goods or delivering a service, a proforma invoice can be used to outline the details of the upcoming transaction.

Proforma invoices differ significantly from regular invoices, as they do not serve as payment requests. They are not binding contracts and not included in accounting records. A proforma invoice typically includes several key elements, such as:

• Company name and contact details
• Customer or client name and contact information
• Shipping company information
• Item names
• Item descriptions
• Price per unit
• Total cost per line item
• Total invoice cost
• Invoice expiration date

How to Generate a Proforma Invoice for Your Transactions?

Here are the steps you can follow to create a proforma invoice:

1. Find Costs

The first step of creating proforma invoice is to determine the cost of each item you plan to include. This involves considering all potential charges that could apply to the buyer. Make sure to include the additional cost related to exporting, such as taxes, shipping fees, customs duties, and any other related expenses. The more comprehensive and accurate you are in listing these costs, the clearer it will be for the purchaser, ensuring they know what to expect in terms of payment.

2. Create a Proforma Invoice

The next step is creating a proforma invoice document using a standard invoice format. Start by clearly labeling it as a “Proforma Invoice” at the top. Include your business name, logo, address, phone number, and email, along with the client’s name, address, and contact details. Make sure to specify the date of proforma invoice is created and its expiry date to indicate the validity period. Assign a unique invoice number for tracking, and provide a detailed list of goods or services, including quantities, unit prices, and totals. Also, include payment terms, such as the due date and method of payment, to ensure clarity for both parties.

3. List the Invoice Items

A crucial step in creating a proforma invoice is listing all the items involved in the transaction with accuracy and in detail. For each item, include a clear description, quantity, unit price, and the total cost (quantity multiplied by the unit price). If you are exporting goods, specify the country of manufacture for customs purpose. These details are transparency, helping both parties to understand the transaction, and minimizing the risk of confusion or disputes, especially in international shipping where customs regulations can be complex.

4. Include Agreement Terms

You should also outline the terms of your agreement in the proforma invoice. If you are exporting internationally, be sure to specify the currency the buyer should use for payment. This step is crucial in ensuring that both your business and the purchaser are clear on the details, helping to establish a formal agreement. Once you have included the terms, you can add the signature at the end of the invoice to validate it, then send it to the purchaser for their review and acknowledgement.

5. Reach an Agreement with the Purchaser

After sending the proforma invoice to the purchaser, the next import step is to reach an agreement with them. Once both parties review and agree on the terms, including the quoted amount, then the business can proceed to generate a regular invoice. This official invoice is then issued to the purchaser for payment. At this stage, the company is also expected to deliver the goods or services as outlined in the proforma invoice, fulfilling the terms of the agreement. The proforma invoice acts as a preliminary agreement, setting the stage for the final transaction and ensuring both the buyer and seller are aligned before the goods or services are exchanged.

Tips for Creating a Proforma Invoice:

Be Detailed: Include all items, payment terms, and conditions to ensure accuracy. This helps to build trust and encourage repeat customers.

Proofread Your Invoice: Check for spelling errors, correct monetary amounts, item quantities and accurate contact information to ensure the invoice is error-free.

Customize Your Invoice: Tailor the invoice’s design (color, font, format) to match your branding, making it more professional and recognizable to your customers.

We hope now you have a clear understanding of what a proforma invoice is. It is crucial for ensuring transparency and clarity between buyers and sellers. While not a legal document, they play a significant role in building strong trading relationships. Generating proforma invoices is simple with InvoiceTemple , choose the correct and perfect software to access various proforma invoice samples and expedite your invoicing process.