Type of Transport Document: Proforma Invoice

Invoice serves as an important bill of sale in any transaction, but the proforma invoice has a specific role, especially in the export business. Unlike a common quotation form or bill of sale, this invoice has a more binding nature. Understand the definition, function, and the content of this invoice type before you use it in a transaction.

Definition and Function of Proforma Invoice

Proforma invoice is a quotation form sent to a prospective buyer before the business sends the goods or products. Instead of the common price quotation, this invoice includes more details in the goods’ descriptions, prices and payment terms, and delivery details. Also, it serves as the base of various invoices you must fulfill later.

What are the functions of proforma quotation? Here are the main ones:

1.      Sign of Good Business Will

Proforma quotation is generally non-compulsory. However, many buyers demand this invoice as a form of goodwill. Business owners can also use this form as a tool to create more consistency in transactions. The form serves as a softly binding document between the business owner and the buyer.

2.      Streamlining the Business Process

In a large-scale business, each transaction must go through a lengthy process. Changes during the vital sales steps will make the process troublesome. By providing a proforma invoice at the beginning, business owners can smooth over the details and streamline the process until the transaction is completed.

3.      Better Negotiation Tool

Sending a proforma quotation means you have a serious commitment to providing goods and services. Buyers can also get a clearer picture of what you are trying to sell. Although this is not a final form to make and send, this can serve as a great negotiation tool.

4.      Proforma Invoice as a Way to be Paid More Quickly

Expecting to be paid more quickly? Proforma invoice can help you get it from the customers. It gives them information about pricing and payment terms earlier, which leads to quicker payment and smoother transaction.

Content of Proforma Invoice

What should you put when you need to make a proforma invoice? Here is the typical content:

1.      Complete Prices and Product Details

Prices and products are obviously parts of the invoice. Make sure you include the most current and valid data of prices. The product details will be likely to go through scrutiny since the buyers may need the data for taxation purposes.

2.      Date and Contact Details

Since this form is essentially a more complicated invoice, business owners must prepare important details like the form’s issuing date and their contact details. You must also include the name and logo of the company, just like on regular invoices. Proforma invoice also includes the expiration date for the quotation.

3.      Costs in Proforma Invoice

Business owners must include various related costs in the invoice, which include shipping, insurance, fees, and other related payments outside the total prices. Make sure to include the currencies used.

4.      Shipping and Payment Terms

All terms must be completed to avoid confusion. Business owners must describe their preferred payment terms since the beginning, like letters of credit, documentary collections, or transfer in advance. Meanwhile, shipping terms include details like delivery points (departure and arrival) and method.

When sending a proforma invoice, you may expect the prospective buyers to follow, consider, or cancel the transaction. However, making one in advance gives you benefits of increasing the chance for a successful transaction.