Proforma Invoice Definition
Proforma invoice, defined as an invoice which is sent to a customer before they receive product, has more than one use. For customers it serves two main purposes. First, a proforma invoice allows customers to see estimates on what their invoice will be: product cost, shipping cost, processing fees, and more. Second, the proforma invoice format is a record to be presented to customs agents when attempting to import or export items.
Proforma Invoice Meaning
A proforma invoice, commercial invoice compared, means an invoice which is made before the sale has actually taken place. When distinguishing a proforma or performa invoice an understanding of latin may be of use: pro generally means before, while per generally means after the fact. This is the main difference between a proforma vs commercial invoice.
Often times, when importing or exporting products, customs agents want to understand the deal taking place. They have many reasons for this, to have a document to later confirm the shipment or to create an expectation of what should and should not be shipped with a product. The proforma invoice, or performa invoice for that matter, gives customs agents an understanding of shipped contents, shipping time, value of the shipment, and more.
On the other hand, clients appreciate an estimate of total cost when receiving shipment. This is akin to receiving an estimate prior to work at the car shop. This document can convey a sense of professionalism to the customer.
Proforma Invoice Example
For example, Juan distributes products to and from Mexico. His company, a fleet of 18 wheel trucks, crosses the boarder several times each day. Juan must make sure to carefully document his shipments to meet the regulations of both governments.
But a recent shipment worries Juan. The customs agents of Mexico have informed him that his shipment may be delayed for inspection. This will cause problems in the deal that Juan has made. He must think of a solution to help speed the process.
Juan has his assistant write an exceptional quality proforma invoice, vs quotation made off company letterhead, for this project. This way his company will come across as the reliable and trustworthy business that it is.
They are put to ease when the customs agents receive this proforma invoice. They still spend some time inspecting the load but release it after just a few hours, rather than holding it over for a number of days. A simple document has solved a problem that effects Juan’s entire company. Juan rests easy that night knowing he has pleased his customers.
For more ways to add value to your company, download your free A/R Checklist to see how simple changes in your A/R process can free up a significant amount of cash.
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