A Pro Forma Invoice is a preliminary document sent by a seller to a buyer before the actual sale is completed. It provides an estimate of the goods or services, including their price, quantity, payment terms, and delivery details.
It works as an estimate of the total order value, helping the buyer to understand the expected cost before placing the order. The invoice is commonly used for international trading to get import permits, financing, and prepare for custom clearance.
How It Works:
- The seller prepares the document before shipment.
- It includes product details, pricing, and terms.
- The buyer reviews and confirms the order.
- It is used for approvals or financing.
Benefits:
- Provides clarity on transaction terms prior to finalization
- Facilitates buyer approval and financial planning
- Supports application for trade finance and regulatory approvals
- Reduces ambiguity in international transactions
Example:
A machinery supplier in India sends a pro forma invoice to the buyer in Kenya consisting information about the product particulars and prices along with the shipping cost, before placing the order.