What is a proforma invoice? When and why to use

There are times when a business needs a record of an order before the sale has been processed and goods or services delivered. A proforma invoice serves this purpose.

But what is a proforma invoice?

This article will cover what a proforma invoice is, plus when and how to use one.

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A proforma invoice is a document provided before or with a shipment of goods.

It describes the items and terms of sale, but does not serve the function of a real invoice. It can act as an estimate or quotation for the customer – but not the final bill for payment.¹

An invoice is a document that specifies any products sold or services provided to a customer for a particular period. It acts as a notification that the customer should pay.

A proforma invoice is usually issued before the sale takes place. It is commonly used in export sales, where payment is not yet required.

Proforma invoices provide an estimate or quotation for goods or services before they are shipped or provided but only once the customer has demonstrated commitment to a specific price. It does not mean the invoice is due for payment.

Proforma invoices cannot be used to request or make payment. A full invoice is needed before the buyer makes payment.

A proforma invoice is often issued by businesses in the international import and export industry.

If a final invoice is not available, the seller can provide a proforma invoice for customs use. Officials can use this to determine the US import taxes and duties due.

This could include any shipments from international suppliers, in the UK or Europe for example, into the US.

For example, if you are buying a large batch of materials for your business from overseas, you can usually get your supplier to send the proforma invoice before the delivery. You can then let US Customs and Border Protection (CBP) or your courier know the details beforehand, and pay the charges before the goods arrive in the US. This can save you time spent waiting for US customs.

The proforma invoice can also be used for US customs clearance.

US customs rules for importing goods into the US state:

“If no invoice or bill is available, a proforma invoice must be filed, and must contain sufficient information to determine admissibility, classification, and the amount of duties due.”

The company must produce the full commercial invoice within 120 days.²

A proforma invoice can also help the purchaser decide whether to go ahead with the order. It can act like a quotation for consideration. They will also not be hit with any unexpected fees once the invoice arrives, as the proforma invoice will have already given them an estimate.

No formal guidelines dictate the exact presentation or format of a proforma invoice.

However, it should include some specific pieces of information. This is especially important when used for customs clearance.

There is no fixed standard for proforma invoices. Following a template or example can be helpful to ensure you include all the relevant information. If they are required for customs, missing information can lead to delays.

Wise provides several templates for invoices in different formats.

The following adapted example shows a typical proforma invoice:

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Wise offers a multi-currency business account, allowing you to get paid in different currencies. You can also transfer and convert your money when it suits you, all in one place, at the real mid-market rate.

You can benefit from having up to 10 local bank account details. This means you can have a UK account number and sort code, for example, even as a US citizen. Customers can pay in their local currency, which can help you get paid faster.

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Wise Business also provides downloadable free invoice templates to make life easier. So next time someone asks 'What is a proforma invoice?', you can show them your own example.

Registering with Wise Business is free, and you can get support around the clock.

Sources:

All sources checked 15 October 2021.

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