Pro-Forma Invoice

What is a 'Pro-Forma Invoice'

A pro-forma invoice is a preliminary bill of sale sent to buyers in advance of a shipment or delivery of goods. Typically, it gives a description of the purchased items and notes the cost along with other important information, such as shipping weight and transport charges. Pro-forma invoices are often used for customs purposes on imports.

BREAKING DOWN 'Pro-Forma Invoice'

A pro-forma invoice differs from a simple price quotation in that it is usually considered a binding agreement, despite the fact that, like a price quote, the terms of sale are subject to change. A wide variety of businesses in virtually all industries use pro-forma invoices.

Most pro-forma invoices provide the buyer with a precise sale price. It includes any commissions or fees, such as applicable taxes or shipping costs. Though the pro-forma invoice may be subject to change, it serves as a good faith estimate to avoid exposing the buyer to any unexpected charges once the transaction has fully completed.

A pro-forma invoice may be sent prior to the shipment of any agreed-upon deliverables, or along with the shipped items. While it does contain exact details regarding the costs associated with the sale, it does not serve as an official invoice upon which a payment must be made.

Pro-Forma Invoice Format

There are no guidelines dictating the exact presentation or format a pro-forma invoice must take. As a result, there are variances from one business to another, or from sale to sale. In that regard, the pro-forma invoice may be strikingly similar to or different from other commercial invoices.

Use of Commercial and Pro-Forma Invoices

Generally, if the sale has already been completed, a commercial invoice is used as a record of the sale. In comparison, a pro-forma invoice may be used when a transaction is not officially complete. This can apply to instances where full payment is not due until certain goods are received, as dictated by any other sales contracts between the buyer and seller businesses.

Commercial and Pro-Forma Invoices and U.S. Customs

For items to pass through U.S. customs, certain documentation is required. A traditional commercial invoice requires a large amount of data, including information about both the buyer and seller, descriptions, quantities and values for all items being shipped, and the location of the purchase.

A pro-forma invoice requires significantly less information. This generally must include enough to allow for required duties to be determined and a general examination of the included goods. If a pro-forma invoice is used, a commercial invoice is required to be presented within 120 days.

RELATED TERMS
  1. Invoice

    A commercial document that itemizes a transaction between a buyer ...
  2. Invoice Financing

    A way for businesses to borrow money based on amounts due from ...
  3. Pro-Forma Forecast

    A financial forecast based on pro-forma income statements, balance ...
  4. Pro-Forma Earnings

    Projected earnings based on a set of assumptions and often used ...
  5. Factor

    A financial intermediary that purchases receivables from a company. ...
  6. Aging

    A method used by accountants and investors to evaluate and identify ...
Related Articles
  1. Investing

    What's an Invoice?

    An invoice is a document that itemizes a transaction between a buyer and a seller. Invoices can also be called bills or statements.
  2. Personal Finance

    Creating An Invoice Template

    How to ensure your invoices include all the key information - in a design that makes them easy to find. A little effort now saves a lot of trouble later.
  3. Investing

    Accounts Payable

    Accounts payable is the amount of a company's total invoices currently waiting to be paid. These invoices are from vendors for products and services that were recently delivered.
  4. Investing

    Small Business: Speed Up Receivables To Avoid A Cash Crunch

    Waiting for customers to pay can be a losing game. Look to factoring for quicker cash.
  5. Investing

    Creative Accounting: When It's Too Good To Be True

    Accounting practices have matured, but there are still plenty of ways that companies can disguise their financial results.
  6. Markets

    Is the SEC Trying to Prevent the Next Crash?

    Find out why the Securities and Exchange Commission wants to crack down on accounting practices, but why it might be better off focusing on other issues.
  7. Investing

    What's a Debit Note?

    A debit note is a document used by a seller to inform a purchaser of a dollar amount owed. As the name indicates, it is a note from the seller that a debit has been made to the purchaser’s account. ...
  8. Markets

    5 UPS Tools to Help Your Small Business Go Global

    Understand small businesses' struggles and the types of tools they need to go global. Learn about the top five UPS tools that help small businesses go global.
  9. Investing

    Understanding Accounts Receivable Aging

    Company managers use accounts receivable aging reports to monitor overdue accounts.
  10. Investing

    The Best 5 Online Accounting Systems For Small Business

    Running a small business can be difficult, but thanks to these online accounting services, taking care of payroll doesn't have to be.
RELATED FAQS
  1. What is cash or pro forma income on an income statement?

    Understand what a pro-forma income statement is, how it differs from a standard income statement and why companies often ... Read Answer >>
  2. Who uses debit notes in business transactions?

    Read about the types of parties that are most likely to issue or receive a debit note in the normal course of business-to-business ... Read Answer >>
  3. What is a common number for days payable outstanding? (DPO)?

    Understand the accounting term, days payable outstanding (DPO), and learn what the most common time period is for a company ... Read Answer >>
  4. How are debit notes to help collect on a debt?

    Learn what a debit note is and how it's associated with a debit memo request. Understand how a debit note works to help a ... Read Answer >>
  5. What are some examples of debit notes in business-to-business transactions?

    Review some examples of debit notes in business-to-business transactions and learn why debit notes would be used instead ... Read Answer >>
  6. Are accounts payable a liability?

    Take an in-depth look at accounts payable, or trade payable, an important current liability account listed on a company's ... Read Answer >>
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  4. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  5. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  6. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
Trading Center