Accounts Receivable Dictionary

What is a Pro-forma invoice?

A pro-forma invoice is a document that a seller provides to a buyer before the goods or services have been provided. It is essentially a preliminary invoice that outlines the terms of the sale, including the goods or services being provided, the price, and the payment terms.

Pro-forma invoices are commonly used in international trade, as they can help facilitate the customs clearance process and ensure that the buyer has all the necessary information to make payment.

They are also often used in cases where the seller and the buyer have agreed on the terms of the sale but the goods or services have not yet been provided.

In accounting, a pro-forma invoice is not considered a binding contract, as it is not a final invoice. It is simply a document that provides information about the potential sale to the buyer.

Once the goods or services have been provided and the final invoice has been issued, the pro-forma invoice is no longer relevant.

Overall, pro-forma invoices are useful tools for facilitating international trade and providing information to buyers about potential sales. They are not, however, considered binding contracts and do not have the same legal significance as a final invoice.

What is the difference between an invoice and a Pro-forma invoice?

An invoice is a document that a seller provides to a buyer after the goods or services have been provided, outlining the terms of the sale and requesting payment. It typically includes information such as the goods or services provided, the price, the payment terms, and any applicable taxes.

An invoice is considered a binding contract between the seller and the buyer, and the buyer is expected to pay the amount stated on the invoice.

A pro-forma invoice, on the other hand, is a document that a seller provides to a buyer before the goods or services have been provided.

It is essentially a preliminary invoice that outlines the terms of the sale, including the goods or services being provided, the price, and the payment terms.

A pro-forma invoice is not considered a binding contract, as it is not a final invoice. It is simply a document that provides information about the potential sale to the buyer.

The main difference between an invoice and a pro-forma invoice is that an invoice is a final, binding document requesting payment, while a pro-forma invoice is a preliminary document that provides information about the potential sale.

An invoice is issued after the goods or services have been provided, while a pro-forma invoice is issued before the goods or services have been provided.

Why do you need a Pro-forma invoice?

There are several reasons why a seller may need to provide a pro-forma invoice to a buyer, including:

To facilitate the customs clearance process: In international trade, a pro-forma invoice can be used to provide the necessary information to customs officials in order to clear the goods for import. This can help ensure that the shipment is not held up at the border and that the buyer is able to receive the goods in a timely manner.

To provide information to the buyer: A pro-forma invoice can provide the buyer with information about the goods or services being provided, the price, and the payment terms. This can help the buyer understand the terms of the sale and make an informed decision about whether to proceed with the purchase.

To facilitate payment: A pro-forma invoice can help facilitate payment by providing the buyer with the necessary information to make the payment. This can be particularly useful in cases where the seller and the buyer have agreed on the terms of the sale but the goods or services have not yet been provided.

To protect the seller: In some cases, a pro-forma invoice can help protect the seller by providing a written record of the terms of the sale. This can be useful in the event of a dispute with the buyer over the terms of the sale or the quality of the goods or services provided.

Overall, a pro-forma invoice can be a useful tool for facilitating international trade and providing information to buyers about potential sales. It can help ensure that the customs clearance process goes smoothly and that the buyer has the necessary information to make payment.

Can payment be made on Pro-forma invoice?

Yes, payment can be made on a pro-forma invoice. A pro-forma invoice is a document that a seller provides to a buyer before the goods or services have been provided. It outlines the terms of the sale, including the goods or services being provided, the price, and the payment terms.

While a pro-forma invoice is not a final, binding contract, it is common for the buyer to make a partial or full payment on the pro-forma invoice as a show of good faith or to secure the goods or services being provided. In some cases, the payment terms may be outlined in the pro-forma invoice, in which case the buyer is expected to make payment according to those terms.

However, it is important to note that a pro-forma invoice is not a final invoice, and the payment made on a pro-forma invoice is not considered a final payment. Once the goods or services have been provided and the final invoice has been issued, the buyer is expected to make the final payment according to the terms of the final invoice.

Overall, payment can be made on a pro-forma invoice, but it is not considered a final payment and the terms of the final invoice will apply once the goods or services have been provided.

Is a Pro-forma invoice legal?

A pro-forma invoice is not a legally binding contract. It is a preliminary document that provides information about the potential sale of goods or services to a buyer. It is not considered a final invoice and does not have the same legal significance as a final invoice.

A pro-forma invoice is often used in international trade to facilitate the customs clearance process and to provide the buyer with information about the goods or services being provided. It is not, however, considered a binding contract between the seller and the buyer, and the buyer is not required to make payment based on the terms of the pro-forma invoice.

Once the goods or services have been provided and the final invoice has been issued, the terms of the final invoice will apply and the buyer will be expected to make payment according to those terms.

Overall, while a pro-forma invoice is not a legally binding contract, it can be a useful tool for providing information to buyers and facilitating the customs clearance process in international trade.