SmartInvoice
Business Strategy 6 min read

What is a Proforma Invoice and When to Use It?

Accounting terminology can be confusing. While most people are familiar with standard invoices and quotes, the "proforma invoice" often causes head-scratching. In this guide, we break down exactly what it is, how it works, and when your business should use one.

SI

Smart Invoice Team

Published March 2025 · Updated April 2025

What is a Proforma Invoice?

A proforma invoice is a preliminary bill of sale sent to buyers in advance of a shipment or delivery of goods/services. The term "pro forma" is Latin for "as a matter of form."

It outlines the items to be shipped, their value, weight, and other essential details, giving the buyer a precise estimate of what to expect. Critically, a proforma invoice is not a final demand for payment and thus does not hold the same legal or accounting weight as a final commercial invoice.

Proforma vs. Quotation vs. Regular Invoice

Document TypePurposeAccounting Impact
QuotationAn initial estimate of costs before any agreement is made.None. Not recorded in books.
Proforma InvoiceA detailed commitment of the final costs after the buyer has agreed, but before final delivery.None. Does not trigger accounts payable/receivable.
Regular InvoiceFinal, legally binding demand for payment after goods/services are delivered.Recorded as Accounts Receivable (for you) and Accounts Payable (for client).

When Should You Use a Proforma Invoice?

  • 1. For Customs and International ShippingCustoms officials need to know the value of items coming into a country to assess duties and taxes. A proforma provides this detail before the actual sale is finalized.
  • 2. When Requiring Advance PaymentIf you need a client to pay upfront before you manufacture goods or start a broad service, a proforma shows them exactly what they are paying for without messing up their immediate accounting books until delivery.
  • 3. Securing Internal Purchase OrdersMany large corporations require a proforma invoice to get internal approval to cut a Purchase Order (PO).

What Must a Proforma Invoice Include?

While a proforma is not a legally binding payment document, it should still be precise and complete so the buyer can use it for import declarations, budget approvals, or advance payments. Include:

The words 'Proforma Invoice' clearly at the top

Seller's name, address, and contact details

Buyer's name and address

An itemized list of goods/services with quantities and unit prices

Total value and currency

Estimated delivery/completion date

Validity period (e.g., 'Valid for 30 days')

Payment terms and conditions

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