Proforma Invoice: What to Include and Why It Matters

Proforma invoice explained: what it is used for, the fields to include, a full export example, its legal value and how it shapes the buyer's letter of credit.

The proforma invoice is usually the first trade document your buyer receives, and one of the most copied. The buyer's purchasing department uses it to approve the order, the buyer's bank uses it to open a letter of credit or release foreign currency, and in many countries the authorities use it to grant an import licence. Whatever you write in it travels into other documents, sometimes word for word.

In this lesson you will learn what a proforma invoice is and is not, how it differs from a quotation and a commercial invoice, which fields it must contain, how to fill it in on a realistic example, what legal weight it carries and how to write it so that the letter of credit opened on its basis is one you can comply with.

What is a proforma invoice?

A proforma invoice is an advance invoice: a document laid out like the final invoice, issued before the sale is executed, that sets out exactly what the buyer will receive and pay. It shows the parties, the goods, quantities, prices, total amount, Incoterm, payment terms, delivery time and validity.

It is not a demand for payment in the accounting sense. You do not record it as revenue, it does not carry a tax point, and it does not replace the commercial invoice that you issue when you ship. If anything changes between the proforma and the shipment (quantity, price, freight), the commercial invoice reflects the reality and the proforma stays as a record of the offer.

What is a proforma invoice used for?

Because of these uses, a proforma must be complete and precise. A vague proforma produces a vague credit or a licence for the wrong goods.

Proforma invoice vs quotation vs commercial invoice

A good export quotation often turns into the proforma once the buyer has chosen quantities and options.

What to put in a proforma invoice

Worked example: Deglet Nour dates to Surabaya

A packer in Biskra offers 20 tonnes of Deglet Nour dates to an importer in Surabaya, Indonesia, shipped in one 40-foot reefer container from Algiers.

The buyer signs and stamps the proforma as accepted, pays the advance and uses the proforma to file for any import approval required for fruit in Indonesia. When the dates ship, the commercial invoice shows USD 57,000.00, deducts the USD 17,100.00 advance and demands the USD 39,900.00 balance.

Is a proforma invoice legally binding?

It depends on how it is written and what the buyer does with it. Under the UN Convention on Contracts for the International Sale of Goods (CISG), when it applies, a proposal addressed to a specific buyer that indicates the goods and fixes or provides for the quantity and price is an offer. An offer that states a fixed time for acceptance is generally irrevocable until that time. If the buyer accepts it — by signing it, by confirming in writing, or by paying the advance — a contract is formed on its terms.

Two consequences follow. First, if you do not want to be bound, say so ('subject to final confirmation', 'subject to availability'). Second, if you do want it to be the contract, attach or refer to your general conditions of sale and include the clauses that matter: inspection, claims, force majeure, applicable law. For large or repeated deals, a separate sales contract is safer than a proforma.

The proforma invoice and the letter of credit

When payment is by letter of credit, the buyer fills in its application to the issuing bank from your proforma. Every condition you propose may become a condition of the credit, which the bank will check strictly.

Write into the proforma:

• the exact name and address of your company as it will appear as beneficiary;
• a description you can reproduce on the invoice, without unnecessary technical detail;
• the documents you can really obtain, and who issues them;
• a latest shipment date with a margin, and a presentation period (21 days after shipment is the UCP 600 default);
• whether partial shipments and transhipment are allowed;
• a tolerance if quantities can vary ('about' gives ±10% under UCP 600 article 30);
• the place of expiry (preferably your country) and whether you want the credit confirmed.

Common mistakes

• Giving no validity date, then being held to old prices after freight rates or exchange rates have moved.
• Writing an Incoterm without the named place, or with a place that does not suit the transport (FOB for a container picked up at your factory).
• Listing documents you cannot obtain, such as a certificate from a body that does not exist in your country or a 'clean on board' bill of lading for road transport.
• Using different units on the proforma and the commercial invoice (tonnes on one, cartons on the other).
• Sending a proforma that does not mention advance payments, which the buyer's bank then cannot reconcile.
• Using the proforma at the bank when the credit calls for a commercial invoice.

Putting it into practice

On Incoforms, the proforma invoice is generated from the shipment's data — parties, goods with HS codes, quantities, prices, Incoterm, ports and payment terms — and numbered from the shipment reference. When the buyer confirms, the same data produces the commercial invoice, packing list and other documents without retyping. The document designer lets you show the amount in words and print the proforma in English and French.