What is a Proforma Invoice? (And When to Use It)

Proforma invoices serve a vital role in many transactions, often acting as a quote or estimate to provide details about the goods or services being sold. These invoices are particularly useful for organizations that ship goods internationally, but they can be applied to any type of transaction between businesses and customers.

Let’s take a closer look at what is a proforma invoice and how this type of document can benefit your company, from streamlining the sales process to building stronger relationships.

Proforma invoice definition

A proforma invoice is a document that’s used to provide information about goods purchased or sold between two parties in an act of “good faith” before a final agreement is reached. It provides important details about the goods being traded, such as price, quantity, and shipping method.

It includes all the same information that a sales invoice would include so that both the buyer and seller have a complete understanding of the transaction. Unlike sales invoices, however, the document is visibly labeled “proforma invoice” and typically doesn’t have an invoice number.

Benefits of proforma invoices

Proforma invoices give buyers the chance to confirm their order before committing to the purchase, which is one of their major advantages. They’re a valuable asset for business services because they provide:

Transparency

Provide a clear estimate of the cost of goods or services prior to delivery. It also includes detailed information about the goods and services, which helps build trust.

Timely payments

Speed up the payment process by ensuring customers know exactly what they will have to pay upfront. Get fewer pricing questions from customers and receive timely payments.

Better management

Proforma invoices make order management easier. They allow buyers and sellers to plan ahead before ordering new items or equipment needed for future orders.

Peace of mind

Instill confidence in all your transactions. The buyer is protected from sudden surcharges or overcharging, and the seller is assured the buyer will pay once the final sales invoice is issued.

Expedite customs

With international transactions, proforma invoices come in handy. Not only do they serve as a preliminary offer, but they also contain all the information required to help expedite customs clearance. 

How proforma invoices compare to others

Proforma invoices are unlike other types of invoices in several ways. For example, sales invoices are issued when the goods or services have been delivered and payment is due. They’re legally binding agreements, whereas proforma invoices are sent before the sales and details have been confirmed. 

These invoices are also different from commercial invoices, which are primarily used for international shipments because they detail the exact quantity shipped. Since a proforma invoice is used by companies to inform the buyer of goods or services and how much they cost, it’s sent prior to any good or service being delivered.

Proforma invoices are primarily used for quotes and estimates. Plus, these invoices don’t include information required in many countries to impose taxes, making them more of a guiding document rather than an official request for payment.

Proforma invoice best practices 

Whether your organization plans to implement proforma invoices or already uses them, there are a few steps that you should follow to ensure that they’re set up properly. 

Gather necessary information

First, collect information like the buyer’s name and address, the seller’s name and address, a description of the goods or services being purchased, and the purchase price. 

You may also want to include other details, such as the date of purchase, the terms of sale, and any discounts that may apply. Since a proforma invoice allows for further negotiation down the line, none of this is necessarily final.

Create your document

Once you have this information, you can create a document with all of these details in word processing or spreadsheet software. When creating your proforma invoice, there are a few things that you should keep in mind to help streamline the process. 

1. Check that all of the information is accurate so that both buyer and seller are aware of the terms.
2. Make sure the document is clear and easy to read to decrease any confusion from either side. 
3. Save your document in a format that can be easily opened by your buyer, such as PDF.

Both parties will likely be viewing this document multiple times, so it’s vital to follow these best practices for a smoother transaction.

Streamline your invoices in one place

Proforma invoices enable sellers and buyers to complete transactions with confidence and ease. Over time, however, it can be difficult to manually process and manage these invoices — especially when your departments are also juggling other types of documents.

Watch a short video to see how Rossum’s intelligent document processing increases efficiency and accuracy across all of your document workflows.