Pro Forma: What It Means and How to Create Pro Forma Financial Statements

Because the document issued is not legally binding, there is no need for an invoice number, the exact date of delivery, or payment terms (e.g. payment in 30 days). All you will need to do to transform your pro forma into a true invoice post-delivery is to add those things in and modify the date of issue. Think of quotes, pro forma invoices, and invoices as existing on a continuum from not legally binding to non-negotiable and binding. It is created to give customers who have expressed the intent to buy from you a detailed, good faith estimate of what their total cost will be when the sale becomes final. A proforma invoice is an estimate of sale and not an actual precise transaction, meaning you can’t make payments with it.

Do you still have questions about proforma invoices and how they differ from formal invoices? Let’s break down some of the most frequently asked questions. For manufacturing companies, custom orders are a great opportunity for a proforma invoice.

This is where a proforma invoice and a more conventional quote or estimate differ. Quotes are a great way to put an initial number on your transaction, which informs your client. If there’s any further negotiation, you can adjust as needed. The purpose of a commercial invoice vs a proforma invoice is different. The world of invoicing can be tricky — even more so, the terminology used in the invoicing world is often confusing. If you’ve never heard the term “pro forma invoice” before, don’t sweat it.

Pro forma invoice vs. commercial invoice

They include an estimate of any commissions or fees such as applicable taxes and shipping costs. Through our integrated customer payment portal, potential buyers can add notes, challenge invoice details, or pay their bills with very little effort. Both you and your customers will better know what to expect from every transaction.

Pro Forma Invoice vs. Commercial Invoice vs. Quote

As such, these invoices can remove the element of surprise from your sales efforts and help your business avoid stress. Here’s what you need to know about pro forma invoices and what they mean for your business. In many respects, a proforma invoice has more in common with a quote than a commercial invoice.

Pro Forma Managerial Accounting

For example, a bakery customer might agree to the price of a cake on a pro forma invoice, and the baker will deliver the cake once it is ready. The customer will then pay for it when they receive the final, formal invoice. The final invoice amount should be the same or close to the amount on the pro forma invoice. This new pro forma invoice featured a delivery date of March 1st along with a $1 price increase for each bookkeeper360 review ordered item to cover the expedite. Now, when the meat delivery and corresponding sales invoice occurs at the beginning of March, both parties will be satisfied with the transaction. Still, these records are only used to gather an estimate from the appropriate customs office for the expected duties or fees for a shipment.

Close crucial deals, improve cash flow, and get paid faster with FreshBooks. Pro forma invoices often come into play with international transactions, especially for customs purposes relating to duties on imports. This can be useful for management and investors, but also, in some cases, misleading to the untrained eye. In this case, the company is projecting the future, based on its knowledge of past sales and expenses and factoring in expected changes.

1. A proforma invoice is a declaration by the seller to provide products or services in the future and isn’t a legally binding agreement.
2. Not all projects — particularly large ones that take place over a protracted period — can be covered with a single invoice.
3. There are several key differences between standard commercial invoices and proforma invoices.
4. The main difference between a proforma invoice and a standard commercial invoice is that a proforma invoice is preliminary or provisional, which means its details are subject to change.
5. However, there are also crucial differences between a proforma invoice and an estimate.
6. So why might you want to create an invoice for the sake of form only?

A proforma invoice is a bill of sale that you send to a customer before your business delivers its goods and services. It usually contains details such as a description of the items being sold, their price, and the total amount payable, along with any taxes and fees incurred. This information gives your customer as precise an estimate as possible of the expected cost of their order. A proforma invoice is mainly used for providing an estimate or a proposal before the actual transaction takes place.

Typically, these payment requests are accompanied by some type of past-due email that is written to encourage a prompt response and that outlines the potential consequences of non-payment. There are two main reasons why businesses may send a proforma invoice before a sale is completed. A proforma invoice is usually issued before the sale takes place.

What is the difference between a proforma invoice and an invoice?

It is usually issued at the time an order is placed, so that the buyer can clarify any questions about the price or date of delivery. A pro forma invoice is used by a seller to communicate to a buyer the expected costs, fees, and date of delivery for an order. This transparency can help the manufacturer avoid any misunderstandings when the order is delivered. The pro forma invoice represents an estimate of the costs that the buying party should expect to pay. A pro forma invoice is different from a simple price quotation in that it lays out the terms of a transaction. It represents a good faith estimate that’s used to inform the buyer and prevent misunderstandings about any unexpected or significant charges once the transaction is final.

Save time and automate your invoicing with QuickBooks

A company may present a pro forma statement to inform investors about their internal assessment of the financial outcome of a proposed change in the business. A pro forma income statement uses the pro forma calculation method mainly to draw the attention of potential investors to specific numbers when a company issues its quarterly earnings announcement. Not all projects — particularly large ones that take place over a protracted period — can be covered with a single invoice. An interim invoice allan accounting and tax solutions is a sales invoice for a particular phase or milestone of the overall engagement, allowing sellers to capture some of their owed funds before total completion. Our complete, automated proforma package transforms your preliminary invoices from a chore to a powerful instrument.

These are models that forecast the expected result of the proposed transaction. Read this clear guide to find out how to create sole proprietorship invoices. Discover how to accept payments online without a merchant account in this step-by-step guide for your business. If you have international customers, you can save money with Wise Business. However, it should include some specific pieces of information. This is especially important when used for customs clearance.

A budget is based on certain assumptions about future expenses and revenues. It takes into account past expenses and revenues and factors in the costs of the company’s plans for the fiscal year. No formal guidelines dictate the exact presentation or format of a proforma invoice. The proforma invoice can also be used for US customs clearance. A purchase order is a receipt confirming an approved transaction’s details.

So why might you want to create an invoice for the sake of form only? It is a legal contract issued by a seller to a buyer after the buyer after goods or services have been received. Put simply, it is the document that customers will use to pay your bill. While similar to both estimates and commercial invoices, a proforma invoice serves a unique purpose and can help you get the most out of your invoicing software. Specific documentation is required before goods can pass through customs into the U.S. Businesses in virtually all industries use pro forma invoices to satisfy their internal purchase approval process.

Many businesses use preliminary invoices for customs purposes. When shipping internationally, you must provide a detailed summary of the goods inside. Most customs agencies require the value of an item, as well as details on its weight, packaging, shipping costs, and more. Unlike a final, sales, or tax invoice, proformas are technically not completed since they don’t have a legally-required invoice number. Think of them as finalized courtesy quotes that prevent unexpected surprises or disputes down the line.