What is Proforma Invoice? How to use a Proforma Invoice?

In business life, many different types of invoices are used. At this point, it can easily be said that the first example that comes to mind is sales invoices. Invoices with waybills and issued for return transactions are other examples of this type of document. Apart from the ones we have mentioned, there is another invoice type used especially for import and export transactions. Many different details, such as the Usement and legal nature of this type of document, known as proforma invoice, are frequently encountered within the framework of business life. In this article, we will clarify the questions about proforma invoices.

What is Proforma Invoice? What are its features?

In the typical sales transaction, the buyer and seller parties determine issues such as the quantity or price of the relevant product through mutual communication. At this stage, no invoice or similar document is issued. When the shopping is completed and the party in the customer position accepts that he will buy the product and pays or will pay the determined amount accordingly, an invoice is issued. However, reserve invoices are used for a different purpose than classical sales invoices, whose function we can summarize in this way.

A Proforma invoice can be considered a preliminary document. This document is the written version of the seller’s offer to the buyer regarding the transaction to be made or the product to be exchanged. In this way, misunderstandings that may arise in the sales process are eliminated and processes such as the review of the offer can be carried out much more smoothly. We can list some of the main features of this type of document as follows:

  • There should be a statement stating that there is a proforma invoice on it.
  • There is no obligation to cut.
  • It is not subject to any tax application.

Among the features of a proforma invoice is that the documents of this nature do not carry any certainty. Other invoice types and proforma differ at this point. Invoices of the classical type are documents with fixed precision. However, they can be changed or canceled by writing official notes on them. However, such a situation does not apply to proforma invoices. As it is an offer, it is possible to manipulate this document.

What is the Purpose of Proforma Invoice?

After talking about what such documents are and their features, the following question inevitably arises: What does a proforma invoice do?

As we mentioned above, this type of invoice is a preliminary document. It aims to clearly reveal the scope and general structure of the shopping to be made. Thus, the demands of both parties in the sale can be easily understood and discussed, and ideas can be exchanged. Proforma invoices serve as the basis for the transaction to take place if an institution’s permission is required or a down payment is to be made.

In Which Fields Is Proforma Invoice Used?

The Proforma invoice issuance process is especially used for purchases and sales in different countries. The terms of the exchange between the importer and the exporter are set forth in these documents. If the buyer company accepts the seller’s pro forma offer, a separate sales invoice is required for the transaction to become official.

Proforma invoices can also be used in e-export, as in classical type international sales transactions. In such transactions, the relevant documents can be forwarded to the other party via e-mail.

A Proforma invoice is a preferred document type for banking transactions besides export. Companies that request loans from banks for expenditure or investment, inform the banks about the content of the transaction using this document. In other words, it may be relatively easy to get a loan with a proforma invoice.

For Which, Businesses Are Proforma Invoice Suitable?

Every business that continues its commercial activities has the right to prepare a proforma invoice. Provided that the document has a pro forma quality, companies may issue such invoices in line with the transactions to be made. Since it is a document used mostly in foreign trade, it is possible to say that businesses whose business plan includes export processes more often cut proforma. You can find more detailed information about the certification of foreign trade transactions from our content titled Invoice Usage in Exports.

To Whom Can Proforma Invoice Be Issued?

Similarly, there is no restriction on who or what type of companies such invoices can be issued to. Such invoices can be issued to any business that is a party to an offer shopping process. If we think in terms of foreign trade, we can say that proforma invoices will be issued to importers.

What is the Legal Qualification of a Proforma Invoice?

A Proforma invoice is a type of document that does not have a legal nature. Such an invoice does not impose certain obligations on either the buyer or the legal level. The absence of any regulation regarding the invoices in commercial and tax law leads to this result. Therefore, it is very difficult to talk about a clear pro forma invoice validity period. If the offer of the company issuing the invoice is still on the table, it can be stated that the document remains valid in practice, although not legally.

How to Use a Proforma Invoice?

There is no legal regulation on creating proforma invoices. Companies can do this manually or on a computer, according to their own preferences. This is one of the differences between proforma and e-invoice. Software called proforma invoice system, which can be found in accounting programs can also be preferred for the transaction in question.

Although the preparation of the proforma is similar to the classical invoices, it is not necessary to use the papers approved by the finance. Letterheads will suffice for this process. Proforma number and date are written in the upper right corner of the document. In the upper left corner, the titles of the buyer and seller are given. In the middle part of the invoice, also known as the body, there should be informed about the products subject to shopping.

What Information Should Be Included in a Proforma Invoice?

The primary information that should be included in such documents is, of course, the proforma invoice amount. Apart from the amount, the following information should also be included in the document:

  • Date of issue
  • Type of goods and services
  • Names or titles and addresses of the seller and the buyer
  • Payment method
  • Origin of the product
  • Delivery method
  • Unit price and quantity of the good or service
  • Weight and dimensions of goods
  • Way of shipment
  • Details and explanations similar to the packaging features of the goods
  • Freight and insurance premiums
  • Editor’s signature

Failure to include any of this information does not mean that invoice is invalid. However, in order for the processes to continue within the framework of a certain order, it would be beneficial to organize the documents over a template containing the data we have counted.

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