Proforma Invoice

Proforma Invoice - Explanation

A Proforma Invoice (PI) is a preliminary bill of sale issued by the exporter to the buyer before the shipment of goods. It acts as a quotation and provides details about the products or services being sold, including pricing, quantity, delivery terms, and payment details. The Proforma Invoice is not a demand for payment but a commitment from the exporter to supply goods under the listed conditions.

Key Components of a Proforma Invoice:

1. Exporter & Buyer Information:
   Includes the names, addresses, and contact details of both parties involved in the transaction.
   
   

2. Invoice Number & Date:
   Each Proforma Invoice has a unique number for tracking, and the date helps to understand the validity period of the quotation.
   
   

3. Product/Service Details:
   This section lists:
   
   

   • Description: A detailed list of goods or services.

   • Quantity: Number of items or units.

   • Unit Price: Price per item.

   • Total Price: Total cost for each item and overall.

4. Payment Terms:
   Specifies how and when payment is to be made (e.g., advance payment, letter of credit, or open account).
   
   

5. Delivery Terms (Incoterms):
   Outlines the agreed shipping conditions, such as whether the buyer or seller is responsible for shipping, insurance, or customs duties (e.g., FOB, CIF, EXW).
   
   

6. Bank Details:
   Provides the exporter’s bank details for the buyer to process payments.
   
   

7. Special Instructions:
   Any additional requirements related to packaging, labeling, or customs compliance.
   
   

Uses of the Proforma Invoice:

1. Quotation:
   The Proforma Invoice is often used as a formal quotation, providing the buyer with all necessary details about the transaction.
   
   

2. Customs & Documentation:
   The buyer may need the Proforma Invoice to apply for import permits, letters of credit, or to facilitate the customs clearance process.
   
   

3. Buyer Confirmation:
   It confirms the buyer’s agreement to the terms mentioned, and they can arrange for financing or proceed with the purchase.
   
   

Proforma Invoice Process:

1. Exporter Issues Proforma Invoice:
   The exporter provides a quote with all terms and conditions, which the buyer can review.
   
   

2. Buyer Confirms:
   After reviewing the terms, the buyer approves or negotiates the offer. If required, they can use the PI to apply for trade financing.
   
   

3. Exporter Ships Goods:
   Once the buyer confirms and payment terms are agreed upon, the exporter prepares and ships the goods.
   
   

4. Commercial Invoice:
   After shipment, a commercial invoice is issued as the final document for payment.
   
   

Conclusion:

The Proforma Invoice is essential in international trade as it provides both the buyer and the exporter with a clear understanding of the terms of sale, ensuring the smooth processing of customs, helping with financing, and avoiding misunderstandings. It also serves as a basis for the final commercial invoice once the goods are shipped.