A pro forma invoice is an initial bill for a product or service from a company to a customer before it has been bought and delivered. This preliminary document confirms the purchase of goods or services with precise pricing but does not require the customer to make a payment when it is received.
So how does a pro forma invoice relate to your business?
The purpose of a pro forma invoice is to spell out the costs of a product or service a customer is obtaining from a business before actually hiring and paying them for it. Many people will ask companies to draw up a pro forma invoice to show a breakdown of costs for a project or product shipment they are looking to have completed.
This document kickstarts the approval process leading into a sale, after which the business will send a purchase order with the agreed upon details, and then an actual invoice to finalize the transaction.
A pro forma invoice is a preliminary bill of sales; an invoice is an actual bill of sales. An invoice is evidence for a job completed or a product sold and is a legal document illustrating this transaction. Invoices are sent after a pro forma invoice, when progressing with a sale between a business and a customer.
Businesses use pro forma invoices to produce an estimate of a service or product for sn interested customer. It is sent out before the order has been produced or delivered. On the other hand, a commercial invoice is the final amount that will be paid for the service or product in question. It should be sent out after the order has been produced or delivered.
A commercial invoice is used for accounting and bookkeeping purposes and is legally binding, while a pro forma invoice is not.
Pro forma invoices can be used for border crossings for importing and exporting goods. If the goods are crossing country lines, this document can be shown as evidence for the merchandising information, declaring the value of goods for customs clearance and duties.
Suppose your company deals with other businesses or customers outside your country of business. In that case, you will need to familiarize yourself with this type of document. Learn more about Canada customs forms.
A pro forma invoice is a crucial business document, but it is not legally binding. This type of invoice typically illustrates a price quote for a business’s product or service. Still, it is not a legal record of sale, and as such, cannot be used as evidence for a completed transaction.
A pro forma invoice should always include the following:
Pro forma invoices can be sent out just like any other invoicing document. Typically, these invoices can be electronically sent through email or printed out and sent through the mail.
As a pro forma invoice is an estimate of sale, but not the actual precise transaction, you cannot make payments on this document. You would need to be sent a purchase order or sales invoice to begin the process of payment.
As pro forma invoicing is used as a price quote for a transaction of goods or services, and is not a bill of sales, there is no need to cancel this document. As long as you do not go ahead with the sale and do not receive a purchase order or sales invoice, you will not need to worry about cancelling your order.
Send out pro forma invoices for your business with invoicing software like QuickBooks Online. You can easily switch between foreign currencies to accurately quote your pricing for your customers worldwide and record transactions in various currencies. Try it free today
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