Proforma Invoices: Meaning, Templates & How-to Create One!

What is a Proforma Invoice?

Proforma invoice is an indispensable tool for running a successful business. It is a document that is sent to your customers who are buying your products and/or services before the sale has actually happened.

You can use this invoice as a cost estimate for your client before all the details of the sale are drawn out and decided.

It is a bill of sale before the product or service has been provided to the customer:

You can think of a proforma invoice as an in advance receipt the customer receives. It generally consists of time of issue, a description of what the customer is buying and the total fee.

Actually, it can be considered as a promise from you -the seller- to provide the product or the service to the customer.

It is an unfinalized commitment between a seller and a buyer.

It is an informational document, not company’s goals:

As the word proforma suggests, it is only a document provided as a courtesy and to meet the minimum requirements of customer satisfaction. However, it would be useful to keep in mind that every proforma has to (only) be informational.

It must not include any ‘goals’, ‘dreams’ or ‘hopes’ of your business, company or the customer’s wishes. Make sure the employees in charge of the document are in knowledge of this statement.

The proforma invoice is a common document in the business world. But if you wish to detail and explain the purpose of the document to your customer, feel free to do so. You can contact them or include a statement that this is only an estimate and an informational document.

It is not legally binding:

The document is not to be registered neither in the company’s accounts nor the buyer’s accounts. However, it is a binding commercial agreement.

That means the document can be changed if the deal is not confirmed or completed. After both of the parties signed the document, the customer has to confirm that they will finalize the purchase. And only then after this agreement, you can continue with the deal.

Why Should You Use Proforma Invoice?

Avoid Unexpected Situations:

The main purpose of any proforma invoice is to minimize surprises and set expectations. By presenting the customer a document with the notions on how, when and how much it will be finalized for, you are staying away from any unanticipated setbacks.

Both the seller (your company) and the buyer (your customer) are aware of what to expect from the deal in terms of cost, details and dates.

Get Organized with Your Customers:

In the proforma invoice document, the sales process as a whole is designed, details are decided on. It also invites the customer to as planned as a sale can be. It is not a receipt for the customer or a demand for a payment either. But it is especially important for the buyer due to the fact that they get to know what to expect with the proforma document.

This document is also used for goods which are going through customers around different countries as well. The quantity and the details such as weight and size of the good is mentioned in the document. Therefore it becomes a much easier process for the package to get through the customs’ screening methods.

In other words, proforma invoice helps to achieve a trouble-free delivery process.

Track Imported Goods:

As it is mentioned with the customs process, it is not a surprise to know that proforma agreements are also used in imports as well. Imported goods and products and also trade transactions utilize this kind of document as well.

There are also a bunch of benefits and advantages for using this document on your business.

One of the key ones are that firstly, it is not a legally binding agreement. The benefits of it is that neither you as the seller nor your customer as the buyer is not legally required to accomplish and finalize the agreement. It can be considered as a pre-legal document.

Furthermore, the document features helpful and useful information for the customer. These relevant details help for both parties to come together in order to understand what they are going to carry out with the deal.

Think of it as a rehearsal for the main agreement. It helps you to consider and reconsider the details of the deal. Therefore, proforma invoices provide you the checking you need in order to minimize and eliminate any potential errors.

When Should You Use a Proforma Invoice?

This document does not guarantee what will be bought, but it states what can be bought by the customers. Most of the big, small and medium size businesses uses proforma invoices.

These businesses range from for example, caterers for events to publishing companies. Though their customers and the area they are providing products and services are vastly different, the agreement which they make with their clients are the same.

Proforma invoices are also used in consignment deals between suppliers, retailers and sellers. These deals state that the buyer does not pay for them until they sell or make a profit out of them. After the sales are done, the original seller of the products finalizes the deal and gets paid. These consignment deals mostly occur in retail stores and specific stores which specialize in selling a particular type of product.

Farming Example:

For example, you run a farming business. You need to import products or perhaps, seeds in order to grow them, sell them and make a profit.

Proforma invoices can be considered as a proof of document which can help you get that import permit. By detailing what you want to import and how much of an order you want to place, the government becomes more likely to grant you one.

Because proforma invoices are not registered into accounts. So it does not have to interfere with financial affairs until the deal is finalized. This can help you predict your quarterly estimates without formally engaging and planning with the accounting department of your company or business.

No matter how big or small your business, transparency is and always will be a key element in trade. Anything involving a transaction or a financial trade requires honesty and transparency. And proforma invoices strives to achieve that with providing the necessary information and details for the customer. This clears the air and leaves no room for confusion between the parties.

More importantly it takes one more step to build a trusting relationship between the buyer and the seller.

The Difference Between a Commercial Invoice and a Proforma Invoice

Meaning

The distinction between a commercial invoice and a proforma invoice can seem complicated. However, the difference is fairly simple. A proforma invoice should be used in order to create a potential deal. On the other hand, a commercial invoice should be issued when the sale is finalized. The meaning behind a commercial document is when the order has been placed, the product or service has been sold, both parties agreed and now the buyer must pay the fee for the product or the service.

Type

A proforma invoice is a type of quotation. It means that the seller is committed to provide certain goods with an estimated price on a specified date. This estimated price (the quotation) can be accepted or rejected by the buyer. Due to the fact that a proforma invoice is not legally binding and financially invaluable, the details of the document can be changed.

A commercial invoice is a type of bill. It is a receipt that the buyer has to pay because the deal has been finalized and the products, services or goods have been delivered. Unlike the proforma invoice’s estimated cost, a commercial invoice carries the information for the final and the certain cost of the agreement. And the buyer is committed to pay their due.

Time of Issue

A proforma invoice is issued before the buyer places any orders and also before the deal is finalized. It is used as merely a tool for making a sale.

On the other hand, when a commercial invoice is used it is after the order has been placed. The deal has been made and the only component missing is the payment from the buyer. Unlike the proforma document which is a tool for the creation of a deal, a commercial invoice is the confirmation of a sale.

Objective

A proforma invoice lets the buyer take their time on the deal and decide on whether they should buy it or not. By only sending an informational document about the potential deal, the risk of making mistakes and errors in the deal will be avoided.

A commercial invoice’s object is to let the buyer know how much they have to pay for the products and services. It is not an informational document; it is actually a demand and a request from the seller for the payment required for the purchase of the goods.

Changes in the Deal

Perhaps the biggest difference between the two types is the chance to change the details of the deal. While the information on the proforma invoice document is temporary and can be changed before the finalization of the deal, a commercial invoice is the final state of the agreement. The terms, dates, details and also the cost of the purchase can be subject to change in proforma documents; however, a commercial invoice is the proof of document for the confirmation of the purchase. All the details would be agreed on and the only thing left is for the buyer to complete the transaction.

Templates for Both of the Invoices

No matter which type of invoice you decided to go with, Someka has a Microsoft Excel template for either of them.

Proforma Invoice Template:

If you choose to use a proforma invoice for your business ventures, Someka’s free Proforma Invoice Template is the right way for you to create that document.

It has multiple databases for you to put in your information and details about your customers. Apart from the ‘Customer Database’ section, Someka also provides a ‘Product Database’ in order to put the details such as name, category and the description of the product.

Also, you can always count on keeping your clients’ payment details in the template as well. You do not have to write those in your ‘notes’ app on your phone or write in on a piece of paper which you can lose.

And last but not least, the template offers you two proforma templates depending on the shipping details you might want to include or not. If you want to add the shipment information into the proforma document, you can choose to use the ‘detailed’ one.

Commercial Invoice Generator:

If you want to follow the commercial invoice route and finalize your deals, you can download and instantly start to use Commercial Invoice Generator & Tracker Excel Template from Someka.

This simple yet professional and easy to use tool is specifically designed to those who need this the most.

If you are a small or medium sized business (SME), in charge of the invoice management in your company or even if you are a newly established start-up, this Excel template will make the creation of a commercial invoice process shorter and much easier for you.

With its database sections for the products or services you own and the tracking details for all your past documents, this well structured template is ready to use at the moment!

Invoice Tracker:

Tracking the invoices is another important issue for the companies. If you want to keep record of your customer payments, we have a very simple yet powerful tool for you: Invoice Tracker Excel Template. If you prefer something online, than you can also try Invoice Tracker Google Sheets Template.

Common Invoice Mistakes

Missing Description of the Product, Service or Good

Your customers would want to understand and would like to know what they are buying from you.

Here, communication is the key.

Put yourself in the place of the buyer and ask:‘What would I want to know if I was buying this product?

By answering this question, you will come up with the details and necessary information you would be putting in the description of your proforma document.

Not Putting Any Date or Putting the Wrong Date

If you are sending a proforma invoice, a date is needed; however, you can always change it by talking and discussing the deal with your customer as well.

On the other hand, if you are sending a commercial invoice, a certain date needs to be set. So the buyer would be required to pay what is expected until that date. Vague payment details and undecided dates will only lead to confusion.

That is one of the most important things you want to avoid in a deal, agreement or a transaction.

Sending the Invoice Late

You might be thinking that ‘it is better for the customer to ask for an invoice’.

But it actually creates a worse situation.

Your customers, no matter if they are a huge conglomerate or a small local boutique shop, might not have only you as a seller.

They might be busy with other products, other sales and other ventures. They might forget that they have to receive the document. You as the seller have the responsibility to send it. Also, it is not rude to send it right away, even if it is for a demand for the payment on the deal.

The earlier you send the invoice, the earlier you will get paid. Do not forget that!

Making Mistakes in the Details

Mistakes always happen and they will continue to happen regardless of the seriousness and professionality of the work in question.

However, making mistakes and not correcting any errors might make you seem lazy and unprofessional.

Reading, editing and checking every detail, even the smallest ones, is crucial specifically for big deals concerning a lot of money.

Especially, making mistakes on the details of your customer can sometimes be a deal breaker. Double checking everything until the second you send the agreement is the ultimate risk reducer.

Putting Unexpected Fees or Changing the Cost

Any business, deal or agreement involving money is not a place for surprises.

Of course, proforma invoices only mention the estimated price for the product or the service you are selling. And there is nothing wrong or unprofessional about changing the cost of it or adjusting the shipping fees.

However, when it comes to a commercial invoice, you cannot add any additional fees on the document. Every cost or fee has to be the exact same number as you and your customer have agreed on.

Any unmentioned change in the deal (even if it is a proforma one) can result in you losing the customer.

How to Create Your Own Proforma Invoice

Creating a proforma invoice takes time and should take attention as well. So, if you follow these basic steps below, you would be reducing the time to research invoices and how to create them.

Agree on a price

This should not come as a surprise. It is the first and perhaps the most important step of it all.

The whole deal relies on getting paid from the buyer. So the first step you have to take is to mention the price of what you are selling. The customer might find the price high.

Do not worry, you have a lot of time to discuss and consider new options with the customer. You can send multiple proforma documents as well, with changing the price and additional costs. However, the important conclusion you and the customer both come to is to agree on the price (and the additional fees).

State the format of the invoice

As it is mentioned in this blog post in previous chapters, invoices can fall in different kinds. Communicate with your customer and specifically state on the document which invoice you are sending whether it is proforma or a commercial one.

List the item(s)

Sometimes you might not sell only one product or a service. The deal can be based on multiple goods. That is why you have to remember to list all of the items you are selling separately and be transparent about each of its price and costs.

Decide on the currency

If you are making deals around the globe, it is important to agree on a currency with your client. Try to avoid any conversions between currencies due to the fact that when the deal is finalized any of the currencies can worth a lot more or less.

Sign with the date

Some invoices are commercially and some invoices are legally binding. So, it is crucial you always put in the date of the agreement. And if you want to finalize the deal and complete the purchase the person who is in charge of the deal has to add their signature on the document as well.

Below, you can find the necessary and important information and details you should include in your document:

Invoice header: Always have a clear header specifying the type of the invoice.

Invoice number: Every invoice has its own unique number. By including this information, it becomes for both of the parties to find and locate the document later.

Invoice date: Include the date which the invoice was created and sent. Also, do not forget to add the expiration date of the deal as well.

Tax, shipping costs and price for each item: Any applicable tax rates, subtotals before tax and deductions, the shipping cost details and the exact price for each item should be included.

Seller and buyer details: Both of the parties’ reachable contact information must be included.

Package details: The number of products, details such as volume, weight and size and the content inside will help throughout the shipping processes.

Shipment details: Do not forget the shipment method, shipping date (if possible, the arrival date) and the full address for both of the parties.

Total: It is important to include the prices, costs and tax; however, the total amount due the buyer has to pay if the deal is finalized should be detailed as well.

Start on Your Proforma Invoice Now!

The best software to create your proforma invoice is Microsoft Excel. Every business regardless of their size uses Excel. Everyone is used to it, so there is no learning curve! Also, if you download and create your invoice with Someka’s templates for Excel, you would be creating professional documents, again, regardless of the size of your business!

The detailed yet easy to fill aspect of the template and the compatibility for both Mac and Windows devices are enough to get you started on your own proforma invoice! But if you still have concerns, just check the price of the template. That is right, unlike its expensive online competitors and their hard to learn software, Someka’s Proforma Invoice Template is free! All you need is to download and immediately start using it in Excel!