What Is a Pro Forma Invoice? Required Information and Example

What Is a Pro Forma Invoice?

A pro forma invoice is actually not an invoice. It is a preliminary bill of sale sent to buyers when an order is placed and in advance of a shipment or delivery of goods. It will typically describe the purchased items, price, and other important information such as the shipping weight and transport charges.

Understanding Pro Forma Invoices

A pro forma invoice is different from a simple price quotation in that it lays out the terms of a transaction. However, the terms are subject to change. It represents a good faith estimate that's used to inform the buyer and prevent misunderstandings about any unexpected or significant charges once the transaction is final.

Businesses in virtually all industries use pro forma invoices to satisfy their internal purchase approval process. Pro forma invoices streamline the sales process by limiting additional back-and-forth after a transaction is intiated, as all terms have been defined upfront.

Most pro forma invoices provide the buyer with a precise sale price. They include an estimate of any commissions or fees such as applicable taxes and shipping costs.

A firm may send a pro forma invoice before shipping any agreed-upon deliverables or with the shipped items. It contains cost details associated with the sale but is not an official demand for payment. No guidelines dictate the exact presentation or format of a pro forma invoice, and it may or may not resemble actual commercial invoices.

Purpose of a Pro Forma Invoice

A pro forma invoice is used by a seller to communicate to a buyer the expected costs, fees, and date of delivery for an order. This transparency can help the manufacturer avoid any misunderstandings when the order is delivered. The pro forma invoice represents an estimate of the costs that the buying party should expect to pay.

A pro forma invoice also provides the buyer with an opportunity to negotiate the terms before delivery. For example, if the buyer is not satisfied with the price, quantity, or delivery timeline, they can contact the manufacturer to reach a mutually-satisfactory conclusion.

Pro forma invoices aren't legally required but they're generally a good idea because they can prevent disputes at the time of delivery.

Pro Forma Information

For International Shipments

Specific documentation is required before goods can pass through customs into the U.S. A traditional commercial invoice must list substantial information such as the buyer and the seller, a description of the goods, the quantity, the value for all the shipped items, and the location of the purchase, the method of payment, currency, carrier, and more.

A pro forma invoice isn't needed for international shipments but is often used when a transaction that isn't final requires an estimate of the cost of products being bought. It should include enough information to allow customs to determine the duties needed from a general examination of the included goods. This information can include:

• Estimated price
• Product description and quality
• Product quantity
• Payment method
• Expected delivery time

If a firm uses a pro forma invoice for customs, it must also present a commercial invoice within 120 days.

For Other Transactions

A pro forma invoice should include all the details of a transaction even if certain figures aren't yet final so that nothing comes as a surprise to the buyer. Depending on the type of business, a pro forma invoice can include:

• The terms "Pro Forma Invoice" and "Not an Invoice"
• Transaction date
• Product description
• Quantity
• Selling price
• Delivery date
• Handling fees
• Shipping costs
• Any customer or seller specifications

Pro Forma Invoice vs. Final Invoice

While a pro forma invoice represents a preliminary notification of the terms of a purchase agreement, a formal (final) invoice is an official commercial instrument that informs the receiving party of their payment obligation. A formal invoice is usually issued at the time of delivery, and constitutes a request for payment by the receiving party.

Unlike an official invoice, a pro forma invoice is simply used to prevent misunderstandings about the specifics of a transaction, such as the amount due. It is usually issued at the time an order is placed, so that the buyer can clarify any questions about the price or date of delivery.

Pro Forma Invoice Example

A firm may use a pro forma invoice if the terms of the sales contract specify that full payment is not due until the buyer receives certain goods. 

For example, a bakery customer might agree to the price of a cake on a pro forma invoice, and the baker will deliver the cake once it is ready. The customer will then pay for it when they receive the final, formal invoice. The final invoice amount should be the same or close to the amount on the pro forma invoice.

The Bottom Line

A pro forma invoice is a preliminary document that outlines the terms of sale when an order is placed. Although it is not final, a pro forma invoice should give the buyer a clear understanding of the terms of sale, including the price, date of delivery, and any additional fees. It is less official than a formal/final invoice, which is typically issued at the time of delivery.