What is a Proforma Invoice?
The preliminary invoice used for quotations, customs declarations, and advance billing in international trade.
Quick Definition
A proforma invoice (or pro forma invoice) is a preliminary bill of sale sent to buyers before goods are shipped or services delivered. It details the expected costs, quantities, and terms of a potential transaction—serving as a formal quote rather than a demand for payment.
- Not legally binding—serves as a detailed estimate
- Essential for international trade and customs
- Used for advance payments and letters of credit
Understanding Proforma Invoices
A proforma invoice is essentially a "preview" of what the final commercial invoice will look like. The term "proforma" comes from Latin, meaning "for the sake of form" or "as a matter of form." It's a document that looks like an invoice but functions more like a detailed quotation.
Unlike a commercial invoice (which demands payment), a proforma invoice communicates what the buyer can expect to pay if they proceed with the purchase. It allows both parties to agree on terms before any goods change hands or services begin.
Proforma invoices are particularly important in international trade, where they serve multiple purposes:
- Customs declarations — Allows importing countries to assess duties and clear goods
- Import licenses — Required documentation for obtaining import permits
- Letters of credit — Banks need proforma invoices to process L/C arrangements
- Advance payments — Provides basis for collecting deposits or prepayment
Proforma vs Commercial Invoice
Proforma Invoice
Preliminary document before shipment:
- • Sent before goods ship
- • Not legally binding
- • Functions as a quotation
- • Used for advance payments
- • Helps with customs planning
Commercial Invoice
Final document after shipment:
- • Sent after goods ship
- • Legally binding payment request
- • Required for customs clearance
- • Official accounting record
- • Triggers payment obligation
When to Use a Proforma Invoice
International Trade
- 1Customs pre-clearance and duty estimation
- 2Applying for import licenses or permits
- 3Opening letters of credit with banks
- 4Currency exchange arrangements
Business Operations
- 1Requesting advance payments or deposits
- 2Providing formal quotes for custom orders
- 3Internal budget approvals
- 4Price negotiations and confirmations
Essential Components of a Proforma Invoice
Clear 'Proforma Invoice' Label
Document must be clearly marked as a proforma invoice to distinguish it from a commercial invoice.
Seller and Buyer Information
Complete contact details including company names, addresses, phone numbers, and email addresses.
Reference Number and Date
Unique identifier for tracking, plus issue date and validity period for the quoted prices.
Detailed Product/Service Description
Itemized list with quantities, unit prices, HS codes (for international), and specifications.
Total Amount and Currency
Subtotals, applicable taxes/duties, shipping costs, and grand total in specified currency.
Payment and Delivery Terms
Payment method, timeline, Incoterms (for international), and estimated delivery schedule.
Proforma Invoices in International Trade
Pre-Shipment
Sent before goods leave the seller's country
Customs Ready
Includes HS codes and country of origin
Bank Compliant
Meets requirements for letters of credit
In international trade, proforma invoices are crucial for customs planning. They help importing countries assess potential duties and taxes, enable buyers to obtain necessary import licenses, and facilitate bank financing through letters of credit. Many countries require a proforma invoice before issuing import permits.
Proforma Invoice Best Practices
Include Validity Period
Clearly state how long the quoted prices are valid to protect against currency fluctuations and cost changes.
Be Detailed and Accurate
Include all costs—shipping, insurance, duties—so the final commercial invoice matches closely.
Use Proper Incoterms
For international trade, specify Incoterms (FOB, CIF, DDP, etc.) to clarify responsibilities and costs.
Reference Related Documents
Link to quotes, purchase orders, or contracts to maintain clear document trails.
Specify Currency Clearly
State the currency for all amounts and whether prices are fixed or subject to exchange rate changes.
Common Proforma Invoice Mistakes
- xTreating it as a final invoice — Proforma is preliminary; always issue a commercial invoice for actual billing
- xOmitting HS codes for international orders — Customs requires these for proper classification and duty calculation
- xNo validity period — Prices change; protect yourself with clear expiration dates
- xVague product descriptions — Detailed specifications prevent disputes and customs issues
The Proforma to Payment Process
| Stage | Document | Purpose |
|---|---|---|
| 1. Quote | Proforma Invoice | Estimate costs, agree on terms, secure advance payment |
| 2. Order | Purchase Order | Buyer confirms the order based on proforma |
| 3. Ship | Packing List / Bill of Lading | Goods shipped with shipping documents |
| 4. Bill | Commercial Invoice | Final invoice for customs and payment |
Related Terms
Invoice
Document requesting payment for goods or services
Commercial Invoice
Official customs document for international shipments
Vendor
Supplier providing goods or services to your business
Purchase Order
Document authorizing a purchase from a vendor
Accounts Payable
Department managing vendor invoices and payments
International Payment
Cross-border payment methods and considerations