Definition: A Pro-forma invoice is a preliminary document that states all the relevant information about a future potential purchase. In other words, it is a preview of the actual invoice if the sale transaction is completed.
What Does Pro-Forma Invoice Mean?
Pro-forma invoices are used for many purposes in business. Banks might ask for pro-forma invoices to approve a specific type of loan or some companies ask for them as part of their purchase process to evaluate different suppliers by comparing all of their pro-forma invoices; but the most common use is for import/export procedures. By issuing a pro-forma invoice the supplier informs the recipient all the relevant information about the items being shipped.
This invoices might include things like: contact and business information of both the shipper and the recipient, the per-unit price of each item, the cost of insurance, the cost of the freight, the total amount of the invoice, the shipping conditions (such as FOB, FAS or any other), the quantities of each item, among some other crucial information regarding the transaction, these information is particularly important for customs processes and insurance.
Let’s take a look at this example.
FOP Technologies Co. is a company that sells electronic devices in the U.S. The company manufactures its devices at China and then ships them to U.S. The Chinese manufacturer is about to ship an order of 3,000 devices. The total cost of the devices is $24,000. The shipping company is asking for a pro-forma invoice to handle the shipment. What would be the purpose of this invoice?
A pro-forma invoice, as we explained above, is a preliminary document that states all the relevant information about a future potential purchase. By issuing this invoice the Chinese company is informing both the shipping company and FOP Technologies all the relevant details of this order, including the cost, the number of items and any other cost incurred in the transaction.