When Do I Need To Use A Proforma Invoice

Invoice management, irrespective of its boring nature, is a critical task that a business must attend on a day to day basis. Right invoice management is vital for successful cash flow management and hence it is imperative to know what different kinds of invoices are used in businesses. Proforma Invoice is a significant part of the invoicing process and also an aspect with a lot of ambiguity around. What is a proforma invoice and when should one use it is a most commonly asked question.

In this post, we have offered descriptive details regarding proforma invoices which will help you have a clear understanding of proforma invoices

What is a Proforma Invoice?

Proforma Invoice is a critical part of the invoicing world. It is a provisional bill of sale that is sent to the customers by the seller before the goods or services are actually delivered.

Classically, a proforma invoice generated using a free invoice software contains a date of issue, descriptions of the items (goods/ services) sold, details of the amount payable including any taxes or fees that is applicable to the transaction from the time of issuing the invoice and the actual delivery is made.

With a proforma invoice, a seller tends to inform the buyer about all the charges to anticipate and to eliminate any scope of surprise.

The invoice is considered as a binding commercial agreement. However, the terms on the Proforma Invoice can be altered and it does not have a sequential invoice number.

When should you use a proforma invoice?

There are two core reasons why businesses have to send a proforma invoice (provisional bill of sale) prior to the actual sale transaction. First, you are willing to make the buyer aware of the cost of the items (goods and services) you are selling in advance. Second, you are shipping an order internationally.

1. Informing cost estimate to the buyer: Also known as good faith agreements, a proforma invoice is done between a buyer and a seller. The bill indicates what items are being sold and the total amount to anticipate. However, this does not mean that you are requesting the payment.

It is thus a tool to offer a cost estimate to the buyer and the buyer has the right to alter the order.

2. International shipping: It is imperative to add crucial details in an international shipment. A proforma invoice has details like shipping, packaging, weight, and delivery fees which is important for international shipping. It is mandatory to declare the value of the item being shipped internationally so as to have it easily passed through the customs. This speeds up the customs process and enables a business to make a quick delivery.

To ensure that the full benefits of a proforma invoice are utilized and to create an invoice that is accurate, it is important to have reliable billing software. Proforma Invoice serves as a tool that is used for making good-faith agreements with the buyers and using the invoicing system allows having a more profitable business.

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