Proforma Invoice

A proforma invoice is an informal invoice, a form of quotation from a seller to a potential buyer. Buyers often require a proforma invoice to apply for import approval and foreign exchange allocation.

"Proforma" is a Latin word meaning "for the sake of form." Therefore, literally understood, a Proforma Invoice refers to an invoice that is purely for form and has no actual significance. This type of invoice was originally issued by sellers when promoting goods, allowing buyers to estimate import costs based on a hypothetical transaction. In reality, no goods have been shipped. For this reason, this invoice is also called a "trial invoice" in Japan.

The difference between a proforma invoice and a commercial invoice is that the proforma invoice bears the word "proforma." This invoice can be used to invite the buyer to place a firm order. The invoice generally states the price and terms of sale, so once the buyer accepts these terms, a definite contract can be signed based on the content of the proforma invoice.

Since a proforma invoice details the import price and related costs, some countries stipulate that it can be used to apply for an import license or to declare the price of goods to customs.

In practice, if a proforma invoice contains the content of a quotation and constitutes a legal offer, it can be used to replace a quotation or even serve as a sales confirmation.

Proforma invoices can also be used in other situations requiring settlement.

(1) For prepayment, i.e., requiring cash payment before shipment.

(2) In consignment sales, where exported goods have no definite sales contract and are held by an agent. For the agent, the proforma invoice can serve as a guide for quoting to potential buyers.

(3) In tenders, a proforma invoice allows the buyer to sign a sales contract with one of many competing suppliers based on reasonable prices and sales terms.