Proforma Invoice
Several documents can convey information, request payments, establish bonds and relationships, and even be legally binding. However, a Pro forma invoice differs from regular business invoices with its unmatched characteristics. This crucial invoice is like a sneak peek into the global business platform before everything is set in stone. "Proforma" means "for the sake of form" or "as a matter of form." It is mainly used in financial statements to signify that the financial results are based on assumptions or projections. There are three common types of pro forma statements:
- Proforma Balance Sheets.
- Proforma Cash Flow Statements.
- Proforma Income Statements.
A pro forma invoice is a preliminary document that is provided to a buyer before the final payment is made. This invoice involves the primary stages of exporting the perishable goods that need to be shipped. The bill is prepared by the exporters and provides an estimated price, quantities, shipping bills , and a fixed timeline.
What is the purpose of a proforma invoice?
Pro forma invoice offers an estimated cost to the buyer and a detailed description of the perishable goods that intend to be exported. This enables the buyer to make a precise decision regarding the product cost, specifications, and terms of delivery. This document helps in obtaining certain approvals, such as an import permit and license. Proforma invoices are valid for a limited period. It allows the buyer to make a conclusive decision about whether to purchase or cancel the order.
Proforma invoices serve the required purposes
- Import License Application: It may be necessary for importers to obtain an import license in order to enter certain nations. Along with the application, a pro forma invoice outlining the key components of the planned import transaction must be submitted.
- Pre-shipment check: For certain items or trade agreements, a prior inspection is required. Prior to shipping, the pro forma invoice verifies that food quality and safety regulations are followed.
- Letter of Credit: Letters of credit are a common tool used by importers to ensure that exporters are paid, particularly when goods are exported from India.
- Currency Exchange: In international trade affairs, the pro forma invoice helps the buyer facilitate the currency exchange needed to make transactions.
- Comprehensive Information: Though not a legal shipping document, the pro forma invoice keeps track of the product, quantities, cost, and other transaction details. This enables the buyer to collaborate with the logistics services to receive the goods in a secure manner.
What are the key components of a pro forma invoice?
- A pro forma invoice appears on the document.
- Company name and address of the seller
- Buyer's billing and shipping addresses.
- Terms of the transaction and payment information
- Created invoices and their expiration dates
- Details about the products or services that will be offered.
- Value and volume of the products or services
- Tariffs and savings
- The total amount due
Can a Pro forma invoice be considered a legally binding document?
Though a Pro forma invoice includes similar information as a final invoice, this invoice is not able to carry the same legal weight and is not considered a legally binding agreement or used for accounting purposes. In addition, customers don't have to pay the listed amount; it is neither recorded in accounts nor can be used to reclaim VAT.
When can a Proforma invoice be sent?
A Proforma invoice can typically be sent when a customer is determined to purchase, but the final details are not yet confirmed. After the customer agrees to everything, you can deliver the goods and issue a formal invoice.
Can a proforma invoice be canceled?
The pro forma invoice is not a legally binding document, and if the sale doesn't get processed, there is no action required to cancel the invoice. A customer might step back to go ahead with the purchase even after receiving a pro forma invoice. It's important to keep a check on your incoming and outgoing payments to determine the clarity of a canceled order and its impact on cash flow.
Keep in mind these things while creating a pro forma invoice
A pro forma invoice should include all the important details. A pro forma template seems similar to a final invoice. While preparing a pro forma invoice for export, it's a must to clearly label it "pro "forma invoice" at the top. This document is an estimate and should not be paid until the work is finished and the final tax invoice is issued.
When it comes to creating a Proforma invoice, it is advisable to follow the industry-specific rules. A legally authorized Proforma invoice saves time as well as provides clarity in commercial transactions, such as dates, tax rates, price estimates, and planned delivery schedules.
The changes in the Proforma invoice under GST as compared to the pre-GST Proforma invoice are:
Under pre-GST and GST laws, pro forma invoices are similar in format and content, with only a few differences:
- The GST Proforma invoice includes the number of GST registrations, while the former contains the VAT/CST/Sales Tax registration number.
- The GST Proforma invoice contains additional information about the HSN codes of goods and SAC codes of services.
- GST categorization into SGST, CGST, and IGST depends on whether the supply is intrastate or interstate.
Conclusion
In summary, the Proforma invoice means more than just an initial document; it is a beacon of trust and clarity in international business. Through this vital invoice, new exporters and well-established businesses can navigate the complexities of global trade. The Proforma invoice paves a path for successful, profitable ventures and sustainable growth.
Citrus Freight clearly specifies figures and amounts in both numerical and written forms, including estimated taxes. Our competent team undergoes a double check for all the correct dates and creates a customized Proforma invoice that aligns with the required needs of your perishable goods.