Proforma Invoices: Definition, Importance, and Sample Format

India - May 22, 2023 - Company X received an order of 10,000 boxes of automobile gear from Company Y. However, without proceeding with a negotiation or discussing the terms, Company X starts manufacturing the gear.

Given the situation, Company X can consider making amends by creating a new invoice with reduced pricing and an early delivery date. Nevertheless, rushing the orders to meet the new deadline and that too with reduced prices is very chaotic, inefficient, and unhealthy for a business.

Proforma Invoice is the primary quotation that contains all the details about the goods/service to be provided, quantity, rate, the total payable amount, and other terms of the agreement. It is designed specially to establish an understanding between the seller and buyer and reach an agreement before the delivery process begins.

The Proforma invoice allows the buyer to know what to expect ahead of time such as---estimated costs, fees, and the date of delivery, instead of creating any last-minute surprises or added rush for anyone.

Going back to the example in the previous section, sending a proforma invoice before initiating the manufacturing process would’ve avoided the subsequent communication with Company Y, without creating any hassle or rush for anyone.

By sending a detailed quotation, the buyer can easily take the decision on how to go about the whole transaction and propose any changes if required, before-hand.

Businesses Issue Proforma Invoices

• To inform the buyer about the deliverables and what to expect ahead of time

• To propose the rate and the total payable amount and invite negotiation if required

• To get an acknowledgment from the buyers with an intent to pay

• To initiate the internal purchasing approval process

Format of the Proforma Invoice.

Document title as Proforma Invoice.

Billing and shipping address of the buyer.

Company name and address of the seller.

Transaction terms and payment details.