How to Create a Pro Forma Invoice
This guide explains what a pro forma invoice is, how it differs from a commercial invoice, and when to use it before a sale is finalized. You’ll walk through how to build one step by step, including required details, international payment terms, and best practices. It also ends with quick answers to common questions about pro forma invoices.
What Is a Pro Forma Invoice?
A pro forma invoice is a preliminary document sent to a buyer who has expressed intent to purchase, giving them a detailed, good-faith estimate of what the final cost will be when the sale is complete. It sits somewhere between a quote and a final invoice — more formal than a quote, but not yet a binding request for payment.
The term pro forma is Latin for “as a matter of form.” Unlike a standard invoice, a pro forma invoice is not a legal demand for payment and should never be used for accounting purposes.
Key Characteristics
- Non-binding: Not legally enforceable — it shows what the seller intends to supply and at what cost.
- Pre-sale timing: Issued after a price has been negotiated but before the deal is finalized.
- Comprehensive detail: Despite being preliminary, it should include all relevant transaction details.
Pro Forma vs. Commercial Invoice
| Aspect | Pro Forma Invoice | Commercial Invoice |
|---|---|---|
| Legal Status | Not legally binding — a preliminary estimate | Legally binding document |
| Timing | Issued before the buyer makes payment | Issued after goods ship as a formal payment request |
| Purpose | Estimate and negotiation tool | Primary shipping and customs document |
| Accounting | Not recorded in accounts payable/receivable | Recorded in financial statements |
How to Create a Pro Forma Invoice: Step-by-Step
Step 1: Header and Document Identification
- Title the document “PRO FORMA INVOICE” prominently
- Assign a unique invoice number for tracking
- Include the issue date and the quote’s validity period
Step 2: Seller and Buyer Information
Include full legal names, addresses, phone numbers, emails, and tax identification numbers for both parties.
Step 3: Product or Service Details
List descriptions, quantities, unit prices, line totals, and for international shipments: HS codes, material, and intended use.
Step 4: Financial Summary
Include subtotal, applicable taxes, shipping charges, and total amount.
Step 5: Terms and Conditions
Specify payment terms, delivery timeline, validity period, and for international shipments: Incoterms and shipping information.
Payment Terms and International Usage
On a pro forma invoice, payment terms describe how the buyer is expected to pay if the deal proceeds — not a demand for immediate payment. Common terms include advance payment, a deposit with balance before shipment, open account (e.g., Net 30 after shipment), or documentary collection or letter of credit for higher-risk or cross-border deals. Whatever you state should match what you are willing to accept in the final contract and on the eventual commercial invoice.
For international transactions, the pro forma often supports import planning: the buyer may need it to obtain foreign exchange approval, open a letter of credit, or arrange customs and logistics. Include the transaction currency using its ISO code (USD, EUR, GBP), the agreed Incoterm (e.g., FOB, CIF, DAP), country of origin, HS codes where applicable, and a plain-language shipping or delivery outline. If the buyer’s bank or customs authority will rely on the document, align descriptions, quantities, and values with what you intend to put on the commercial invoice after shipment — large discrepancies cause delays and disputes.
Validity and “subject to change” language
State how long prices and terms remain valid (e.g., 30 days from issue date) and note that exchange rates, duties, freight, or regulatory charges may change before shipment. That sets expectations while keeping the document good-faith and non-binding as a pro forma.
Best Practices
- Label the document clearly: Use “PRO FORMA INVOICE” so it is never mistaken for a final tax invoice or commercial invoice for customs.
- Match detail to the final sale: Use the same line items, units, and descriptions you expect on the commercial invoice to reduce rework and customs issues.
- Set a validity period: Always include an expiry date for the quote and terms; revise or reissue if the deal slips past that window.
- Keep it out of the books: Do not book pro forma amounts in accounts receivable or payable — wait for the commercial invoice or formal contract.
- Document the buyer’s next step: State what happens after acceptance (e.g., deposit invoice, production schedule, shipping date) so both sides share the same timeline.
- Coordinate internationally: For exports, confirm Incoterms, currency, and consignee/importer details with the buyer before they use the pro forma for banking or customs pre-clearance.
Common Mistakes to Avoid
| Mistake | Why it hurts | Better approach |
|---|---|---|
| Treating a pro forma like a final invoice | Confuses payment obligations and can create tax or customs problems | Issue a commercial invoice when goods ship or services are billed under your normal process |
| Vague line items (“miscellaneous,” “services”) | Banks and customs may reject the document; buyers cannot verify scope | Use specific descriptions, quantities, and units on every line |
| No validity date or price lock | Stale quotes lead to arguments when costs or FX move | Print a clear validity period and note what can change (freight, duties, taxes) |
| Mismatch with later commercial invoice | Delays clearance, payment, or LC documents | Reconcile amounts and descriptions before shipment and fix discrepancies proactively |
| Recording pro forma in accounting | Distorts AR/AP and financial statements | Record revenue or payables only when the real invoice is issued per your policy |
FAQs
A quote is a general cost estimate for a potential customer. A pro forma invoice is more formal — issued after pricing has been discussed and the buyer has expressed a clear intent to purchase, but before the deal is finalized.
No. Pro forma invoices should never be recorded in accounts receivable or accounts payable. They exist outside the formal accounting record until a commercial invoice replaces them.