A pro forma invoice is sent to a buyer in advance of a shipment or delivery of goods or services. A pro forma invoice usually includes an accurate sale price as well as a description of the purchased items, and important information relating to shipping costs.
Pro forma is a way of calculating financial results based on presumptions or projections. It is a Latin term that means “for the sake of form” or “as a matter of form”.
Pro forma invoices are used to give customers, who are placing an order with a company, an idea of how much the products and services are likely to cost them. It provides a provisional bill of sales that is sent after a customer has committed to buying the goods or services but hasn’t yet finalised the details of the sale or received the goods.
The invoice will describe the goods or services being sold and the total amount payable plus any taxes or fees that may be incurred to avoid subjecting the customer to any unexpected charges. The customer will agree to the price on the pro forma invoice first and then receive the goods.
Pro forma invoices are used to try and ensure a smooth sales process. Everything is agreed up front and in good faith, the customer is clear on what they are receiving and for what cost and the seller knows that the client is happy with the deal. This should hopefully prevent any discord with the customer once the goods are received and the final invoice is sent.
While a traditional information contains a great deal of information including things like the buyer’s and seller’s details, goods or services provided and payment terms, a pro forma invoice requires only general information to allow customs to calculate duties from a quick examination of the products included.
Helps to ensure a smooth sales process
Includes all the required relevant information that the customer needs
Not a legal binding agreement so the details can be changed or negotiated
Provides an understanding of the commitment to both buyer and seller
Serves as a useful check for errors and misunderstandings
Can be used as a stand in if all the details for a commercial invoice are not available
Can help with a company’s internal purchase process which often require a pro forma invoice
A pro forma invoice is not a request for payment unlike a final invoice and it isn’t legally binding. The pro forma invoice will, like an invoice, describe the items and number of units being purchased plus any associated costs, including customs charges. If the business is international then details of applicable taxes, currency exchange and shipping costs are also included. The details and costs included in a pro forma invoice can be subject to negotiation or change from both seller and buyer and many updated pro forma’s may be sent before the customer is happy with the details. There should be no unexpected changes to the customer from the final pro forma as its objective is to give the client the most precise estimate possible.
As it isn’t a final invoice it doesn’t require a unique sequential number and does not get included in accounting records as the customer has at that point not agreed to the terms so it has no fiscal value.
A precise sale price is included on most pro forma invoices, as well as an estimate of any fees related with shipping costs or taxes. Pro forma invoices can often be subject to change, however they are generally regarded as estimates that help to avoid the buyer paying unexpected, large charges further down the line.
Invoice finance allows you to release cash quickly from your unpaid invoices.
As your lender, we can release up to 90% of your invoices within 24 hours. On payment of the invoice from your customers, we will then release the final amount minus any fees and charges. There are different types of invoice financing options available to businesses depending on the situation and the level of control they require in collecting unpaid invoices.
We are an invoice financing company who offer a solution whereby payments are collected on your behalf managed by our team of expert credit controllers so you can focus on running your business. Our Confidential Invoice Discounting solution is offered to businesses who want to maintain their own credit control processes, therefore this remains strictly confidential so your customers are unaware of our involvement.
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