Proforma Invoice and Commercial Invoice: Definition and Uses
A Proforma invoice, sometimes referred as a quote or estimate is not a true invoice but a document declaring the commitment of a seller to provide goods or services to a buyer at given prices. It shows the number of goods or services and their respective prices. The document is designed to just give an idea to the buyer on the cost of the goods they wish to purchase which may be or not be agreed upon.
How is a Proforma invoice different from an invoice?
Proforma invoice is issued before sales take place and once the buyer receives and deliberates on it and decides to go on with the purchase, a purchase order is then sent to the seller. The supplier then prepares to send the goods or offer the service and sends an invoice, which is a document of sale.
An invoice and a commercial invoice are just the same thing. In terms of content, an invoice and a pro-forma invoice are almost the same. However, since the Proforma invoice is just an estimate value of goods, the prices in an invoice may vary with the one in the Proforma invoice. A Proforma invoice is used by customs to calculate duties and taxes and can be used by the buyer to obtain credit from a financial institution.
An invoice can be registered in the books of accounts while a Proforma invoice cannot. This is because upon sending it to the buyer, there is no guarantee that that the terms stated will be accepted. Generally, a Proforma invoice is a preliminary document that is sent to a potential buyer while an invoice is a document that is sent in advance of the delivery of goods.
Steps in creating a Proforma invoice
• Determine the cost and the sales terms of the prospective deal with your buyer factoring in all additional costs that might be incurred like shipping, warehousing, taxes, and insurance, as well as customs and duty charges.
• Create a pro forma invoice following the commercial invoice format, but print the words “Proforma invoice” at the top of the document page. Also, include all the names and mailing address both for you and your potential buyer along with the date.
• Ensure that you include the exact items or services that are covered by the Proforma invoice. The items should be listed together with their respective prices. Item description should be given in detail such as the exact number, sizes, color, or model.
• State the financial and transport terms of the proposed deal. For example, state the type of currency to be used, and the terms of payment. Give the cost of the items per unit as well as the totals.
• Put your signature and date on your Proforma invoice, which should include your full names and position in the company.
Common Proforma mistakes
A Proforma invoice can be sent to a customer when the seller needs to receive the money before the service is provided or goods manufactured. The mistake made is using the same as a standard invoice, only stamping, and printing Proforma invoice on it. This is wrong because a Proforma invoice cannot be used in place of an invoice. The Proforma invoice should have its own number of the sequence in the invoice numbers and should not show any VAT registration number, but only VAT rates and figures that are subject to rate changes.
Issuing Proforma invoices
It is true that Proforma invoices are not commercial invoices and should be marked “This is not an invoice”. When the customer offered the Proforma invoice accepts the terms, an invoice should then be issued within a given time frame.
Proforma statements are used by entrepreneurs to project future returns of a business as a result of new businesses. They are included in business plans detailing the business ideas, the structure of the business and others. Proforma statements include income and cash flow statements. The income statement project future sales revenues, expenses and the cost of goods sold. The cash flow statement follows up on cash inflow and outflow in and out of the business. Proforma statements are used to secure funding from banks and other sources. Lastly, this kind of invoices are not excessively detailed, but very brief, clear and precise to the point.