What Is a Proforma/Pro Forma Invoice?

January 25, 2023 by Invoice Simple
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A pro forma invoice, also known as a proforma invoice, is an invoice draft that business owners and freelancers can send to customers before beginning a project or asking for payment. A proforma invoice is not a bill; it is simply a way to calculate and notify the customer of the cost of the order before any work is done.  

In this article, we’ll discuss what a proforma invoice is, why you might use it, and how to create one using a template. 

What is a Pro Forma (or Proforma) Invoice? 

Pro forma is Latin for “for the sake of form.” You can think of a pro forma invoice as a preliminary invoice.  

It’s a document that business owners and customers use to establish and agree upon the terms of an order. The pro forma invoice describes the work that will be done and details the cost of an order, as well as any additional charges, including applicable taxes and fees.  

The proforma invoice will provide your customer with an estimate of what they can expect to pay and when payment is due.  

 

What is the Purpose of a Pro Forma Invoice? 

A proforma invoice is a valuable tool for establishing the scope of the work and expectations between you and your customers. It has many benefits, including: 

  • Clarity: A pro forma invoice establishes what is being sold and helps avoid any confusion or misunderstanding about costs and timing between the seller and the buyer. 
  • Accuracy: A pro forma invoice will allow everyone the opportunity to review and agree on all aspects of the order before any work is done.  
  • Streamlining: You can save time and convert your pro forma invoice into a final invoice once the project is completed. And once you have a template set up, you can repurpose it for multiple orders. 
  • Professionalism: Sending a pro forma invoice shows that you care about making sure your customers are comfortable and agree to the terms of the work before it begins.  
  • Smoother transactions: Since terms have already been agreed upon, a pro forma invoice sets you up for a smoother and quicker payment process once the order is complete. And for international orders, a proforma invoice can help advance the customs process. It can also allow customers to initiate any necessary permitting or payment processes they need to execute the final deal. 

A proforma invoice ultimately serves as an estimate. Since it is not a final invoice, a pro forma invoice can’t be used for tax or accounting purposes.  

The amount due is not recorded under the client’s accounts payable or under your accounts receivable. This part of the process doesn’t happen until you submit a final invoice after the work is complete.

 

contractors discussing invoice and blueprints

Who Prepares a Pro Forma Invoice? 

After discussing the order and agreeing on details, the person supplying the goods or service—either a business owner or freelancer—prepares the pro forma invoice to share with their customers.  

The customer then reviews the pro forma invoice and either accepts the terms or negotiates new terms. Once the terms are agreed upon by all parties, the work can begin.  

If you are a business owner or freelancer, you can create your own pro forma invoice from scratch or use a sample invoice template. More on that later! 

 

When Should a Pro Forma Invoice Be Issued? 

A pro forma invoice should be issued after a customer commits to ordering from you. The details of the sale have been agreed upon, but no work has been done on the order yet. This way, all parties have a full understanding of costs and timelines in advance.  

Here are a few examples of when a proforma invoice should be issued: 

  • If goods are being shipped internationally, a proforma invoice can be used to help a buyer apply for an import license or arrange a pre-shipment inspection. 
  • If payment is needed up front for goods or services, a pro forma invoice can be used to negotiate the details of the transaction. 
  • If final details for an order still need to be confirmed, a pro forma invoice can keep that process moving.  
  • If a customer wants to confirm all charges are accurate, a pro forma invoice can be created to ensure that all charges on their orders have been correctly calculated. 

Industries that Use Pro Forma Invoices

Proforma invoices are widely used in various industries, including manufacturing, construction, retail, international trade, and more. Businesses in these industries use proforma invoices to provide customers with an estimate of the cost before they complete their order.  

To provide some insight into why proforma invoices might be useful for certain industries, we’ve gathered these specific examples:  

  • Construction: A pro forma invoice can be used to outline material and labor costs. This way, everyone involved in the project is aware of the costs up front. 
  • Consulting: Consultants can use pro forma invoices to estimate the scope and cost of their work for clients ahead of time, so there are no surprises.  
  • Contracting: Like in construction, contractors can use pro forma invoices to provide their customers with estimates for labor, materials, and timelines before any work starts. 
  • Freelancing: Freelancers can use pro forma invoices to estimate costs and timing for their clients ahead of time and can easily transform the document into a final invoice when the project is completed. 

visual of customs front gate

Is a Pro Forma Invoice Legally Binding? 

Proforma invoices are merely estimates of cost and do not represent legally binding agreements.  

While a proforma invoice will include much or even all of the same information as a regular invoice, it is still a quote and therefore has no legal weight.  

 

What Should You Include in a Pro Forma Invoice? What is Required? 

There are no set rules for what should appear on a pro forma invoice, although certain information is common and recommended. 

Generally, when creating a proforma invoice, you should include the following information:  

  • the term “pro forma invoice” somewhere on the document 
  • the invoice creation date 
  • the invoice expiration date 
  • the buyer’s information, including billing and shipping addresses and phone number 
  • the seller’s information, including company name, address, and phone number 
  • the terms of payment 
  • the product or service being offered
  • the quantity
  • delivery date
  • cost per item
  • discounts, if applicable
  • any additional charges, such as taxes and delivery fees
  • the total price 

For international shipments, the information on a pro forma invoice that describes the goods (price, weight, quantity, kind, etc.) will allow customs to determine the duties needed.  

 

What is the Difference Between a Proforma Invoice and a Regular Invoice? 

The main difference between a proforma invoice and a regular invoice is that proforma invoices do not include payment information.  

Proforma invoices are used to provide an estimate of the cost before completing the order. Therefore, they do not usually include any payment information, such as bank account or credit card details. 

Regular invoices, on the other hand, are sent after an order is completed and outline what has been purchased and how much should be paid. They contain all the necessary payment information that is needed for customers to pay for their orders.  

A regular invoice can be used for tax or accounting purposes, while a proforma invoice cannot. 

Setting up an online payment system might seem complicated at first glance. But easy-to-use invoicing software takes care of the hard work for you, so you can focus on your business. 

 

How to Write a Proforma Invoice

You can create (or write) a proforma invoice from scratch with the details from our “What Should You Include” section above to help you get started. Or you may want to consider using one of Invoice Simple’s existing pro forma invoice templates. 

proforma (pro forma) invoice template

Pro Forma Invoice Templates

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Using a proforma invoice template is a great way to streamline the process, ensure accuracy, and showcase professionalism. 

You can make things even easier by using our online estimate maker and modifying your estimate to mimic a Pro Forma Invoice. Its auto-generation features will speed up your calculations.  

 

 

Need to create a custom Pro Forma invoice?

Try our estimate maker.
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