What is a Pro Forma Invoice

What are pro forma invoices are and what they are used for.

Pro Forma Invoices Described

The function of a Pro-Forma Invoice is strictly advisory.

Its purpose is to illustrate quantities, descriptions and prices for goods or services for a proposed transaction that has not yet taken place. 

It does not describe any form of liability as acceptance is always optional. "Pro Forma” must be clearly stated on all such invoices.

Pro Forma Invoices and Documentary Credits

There are two principal scenarios where pro forma invoices will be employed. One is in respect of a transaction where settlement is to be conducted by way of a documentary credit such as a letter of credit or a bill of exchange.

Inthe case of such transactions the pro forma invoice does not require payment before delivery can be undertaken; that will be a separate matter to be agreed between the buyer and the seller.

In the case of a letter of credit the buyer's liability can only be that as described in the pro forma invoice. The provider of the goods or services may not subsequently amend any detail of it including the prices quoted.

Payment in Advance of Delivery

Where trade transactions are undertaken in the absence of either a letter of credit or credit facilities, providers of goods or services might require payment in advance of delivery.

This will also call for the use of a pro forma invoice where either previous credit facilities are not forthcomong  or if credit checks for a new trade customer have not yet been completed.

In this case the pro forma invoice serves as a description of what is required to be paid if the seller is to undertake a delivery. It is then up to the potential buyer to decide whether to accept it or not.

Pro Forma and Buyers' Rights

The main difference between transactions for letters of credit and anything else is that if the final invoice in respect of a delivery against a letter of credit does not correspond with the pro forma invoice, the customer has the right to entirely repudiate the contract.

Pro forma invoices usually set a time limit for acceptance.

FAQs
Corporation Tax and Marginal Relief From 2023 Deferred Income Explained What is a Monthly Cash Flow Forecast What is Pretax Profit How does a balance sheet balance? Lockdown Recovery: Forecasting Profits, Cash and Finance. How to Apply for Business Interruption Scheme with Figurewizard How to calculate liquidity and short-term liquidity How to calculate markup and margin The Truth about Monarch Airlines Labour's Spending over 10 years from 2000 How to make profits and not run out of cash Credit Checking - How to Read Micro or Short Form Accounts Amortisation of Arrangement Fees for Long Term Loans BHS Profits Performance 2010 - 2014 BHS profits, liquidity and cash flows 2009 - 2014 How to Calculate a Free Cash Flow Forecast Campari: How to apply for a bank business loan What are Current Liabilities What are Current Assets Late Payers and Cash Flow What is Operating Cash Flow? What is Working Capital How to Read a Balance Sheet Business Planning Cash Flow Calculator Short Term Liquidity Business Liquidity Corporation Tax is not Calculated on Net Profit Small Business Corporation Tax Cash Flow Calculator Using Figurewizard - VAT Using Figurewizard - Sales by Month Using Figurewizard - HP or Instalment Plan Budgets Using Figurewizard - How the budgeted cash flow forecast is calculated Using Figurewizard - Fixed Asset Budgets Using Figurewizard - Calculate Purchase of Goods Using Figurewizard - Forecasting Payments to Suppliers Using Figurewizard - How to Forecast Cash Collection Solvency and the Balance Sheet Property in the Balance Sheet Why Equity is a Liability Asset Management and Liquidity Selling Fixed Assets Contracts: Invitation to Treat What is Deferred Income Loss on the Sale of Fixed Assets Calculating Gross Profit Margin Profit and Loss Statement What is Operating Profit What is Net Operating Revenue What is Equity Profit on the Sale of Fixed Assets How Taxable Profit is Calculated What are Operating Overheads Overheads - Provisions How Depreciation is Calculated What is Business Operating Activity What are Fixed Assets Liquidity and Cash Flow Balance Sheet Liabilities and Leases Stock or Inventory Control What is Distressed Stock or Inventory What is Interest Suspense Account Product Safety Laws What is a Bill of Exchange What is Payment at Sight What is a Pro Forma Invoice What is a Bill of Lading What is a packing note What is Demurrage Cash Flow Forecasts and Planning Factoring: Invoice Discounting and Cash Flow How Does VAT Work Figurewizard as a Sales Aid for Factoring and Invoice Discounting