What is a proforma invoice? How does it work?

Proforma invoice can be defined as a compact form of an international sales contract.

In other words, it is a lite version of the international sales contract.

Proforma invoice is expected to be issued by the seller, also known as exporter in international trade, at the beginning of the transactions.

Contents of the proforma invoice may change from industry to industry, customer to customer or country to country. There is no fix and single format available.

What is a proforma invoice? | How does a proforma invoice work?

But in general terms, by preparing a proforma invoice; exporter mainly defines and conveys following information to the importer:
  • the price of the goods
  • description of goods
  • quantity and quality of the goods 
  • packaging
  • delivery terms 
  • delivery period 
  • modes of transport   
  • payment method
How does a proforma invoice work?

Proforma invoice should be issued by the exporter, before the production starts.

Proforma invoice issuance and control process
Graphic Attribution: Free vector design by: Vectezzy!
By sending a signed proforma invoice to the importer, exporter simply states the terms and conditions of the sale in a written format.

Importer should be able to see the all important details of his order on the proforma invoice.

If details stated on the proforma invoice are correct, then importer signs and sends back the signed and confirmed proforma invoice to the exporter.

By exchanging a counter-signed proforma invoice, exporter and importer confirms the order to each other in a formal manner.

How to prepare a proforma invoice?

As I explained above, proforma invoice could be prepared in various forms without any restriction.

In order to help my readers to understand the structure of a basic proforma invoice, I will mention the core contents, that should be stated on a common proforma invoice below.

  1. Proforma Invoice Date: Date on which the proforma invoice is issued.
  2. Proforma Invoice No: Proforma invoice number is one of the key elements, along with the proforma invoice date, to give a proper reference for any future uses.
  3. Consignee: It is the buyer or importer company. Consignee should be determined in detail with company title, address, telephone numbers, contact person and legal reference numbers such as VAT number.
  4. Package Amount, Gross Weight and Net Weight: Total package amount, gross weight and net weight should be declared on the proforma invoice. For example, 10 Pcs Euro pallets, 15000 carton boxes etc.
  5. Description of Goods: Goods should be described on the proforma invoice in detail, so that importer could verify its order's characteristics without any difficulty.
  6. Unit Price: Unit price of the goods should be mentioned on the proforma invoice, if available.
  7. Total Amount: Total proforma invoice amount should be stated on the proforma invoice with the agreed currency.
  8. Loading Period: Indicate when goods will be ready for shipment. Examples, "Goods will be shipped 2 weeks after receipt of 30% advance payment", "Goods will be dispatched 47th week of 2016" etc.
  9. Payment Method: Define agreed payment method in detail such as advance payment, letter of credit, cash against documents, cash against goods or bank payment obligation etc.
  10. Supplier Name: This is the exporter company. Should be defined clearly.
  11. Bank Details: Exporter's bank account details along with swift address (BIC Code) and IBAN, if available. 
  12. Delivery Terms: Proforma invoice should indicate agreed incoterms with proper reference to delivery point and correct incoterms rules edition. Example wordings, "FOB New York Port, Incoterms 2010", "DDU 60435 Frankfurt, Germany Incoterms 2000" etc.
  13. Validity Period for Quotation: Example wordings "This proforma invoice is valid until 20.August.2016", "This proforma invoice will be valid for 4 weeks after its date of issuance." etc.

Proforma Invoice Sample

Below you can find a proforma invoice sample, which covers an extra virgin olive oil shipment from Turkey to Germany via sea transportation.
Proforma Invoice Sample

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