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How to create a proforma invoice for exports?

A proforma invoice is a document used in international trade as a comprehensive price quotation to sell goods. Learn more about its features and format in this blog.

International trade relies on a range of documents and procedures to ensure transparency and smooth transactions between exporters and importers. Export documents are essential to provide a clear, concise, and legally binding structure for all parties involved. One such document that plays a crucial role in the export sales process is the Proforma Invoice for export.

What is a proforma invoice?

A proforma invoice is a document used in international trade as a comprehensive price quotation to sell goods, presented in an invoice format. It serves as a preliminary or initial invoice and looks similar to a commercial invoice but with a few key differences. In most cases, a proforma export invoice is the first export document created when a potential importer expresses interest in purchasing goods from an exporter. An export proforma invoice is a valuable document for both the exporter and the importer, as it provides a clear and detailed understanding of the terms of the transaction, including quality and quantity of goods to be provided, payment terms, and shipping arrangements.

Importance and uses of proforma invoice

The proforma invoice is an essential document in the export sales process, as it provides crucial information to both the exporter and the importer. For an exporter, a proforma invoice helps confirm the importer’s order and provides a detailed breakdown of the costs associated with the shipment. It also serves as a basis for preparing the final commercial invoice. For an importer, the proforma invoice has detailed information on the goods they will receive, including quantity, price, and other relevant information. It also helps to ensure that payment terms and other conditions are clearly defined and agreed upon before the shipment is made. Creating an accurate proforma invoice is critical to ensuring a successful export transaction. This invoice can be used to establish payment arrangements like a letter of credit or financing.

What to include when creating a proforma invoice?

· Price: The cost of the products being sold.

· Description: A detailed description of the goods being sold, including the six-digit Harmonized System or Schedule B number.

· Delivery terms: The delivery terms are expressed as one of the Incoterms 2020 terms.

· Payment terms: The payment terms for the goods.

· Delivery details: Where the goods will originate and where they will be delivered.

· Expiration date: The date by which the buyer must respond to the proforma invoice.

For international transactions, a proforma invoice often includes more detailed information:
· Exporter and importer’s names and addresses
· Importer’s reference number and date of inquiry
· List of requested products and a brief description
· Price of each product in the US dollars
· Delivery point
· Terms of sale
· Terms of payment
· Insurance and shipping costs
· Validity period for a quotation
· Total charges to be paid by the customer
· Estimated shipping date from a port or airport
· Currency of sale

Features and benefits of a proforma invoice

Some of the common features and benefits of a proforma invoice are:

Features of proforma invoice

Detailed pricing:

A export proforma invoice typically includes a detailed breakdown of product costs, including any applicable taxes, fees, and shipping charges.

Flexibility:

Unlike a commercial invoice, a proforma invoice does not require any specific format, making it a more flexible document that can be customized to meet the specific needs of a transaction.

Formal quote:

The proforma invoice serves as a formal quote, providing potential importers with necessary information to make an informed purchasing decision.

Benefits of proforma invoice

Reduces risk:

By providing detailed pricing information, a proforma invoice helps reduce the risk of miscommunication or misunderstandings between the exporter and importer.

Enables financial planning:

Since a proforma invoice includes detailed pricing information, it can be used to secure financing or arrange payment terms, enabling both parties to plan their finances accordingly.

Streamlines customs clearance:

When prepared correctly, a proforma export invoice can streamline the customs clearance process, helping to prevent delays and ensuring the goods arrive at their destination port in a timely manner.

A proforma invoice is a crucial document in the export sales process, as it provides essential information to both the exporter and the importer. Creating a proforma invoice for export involves including detailed information about goods being shipped, payment terms, delivery terms, and any other charges that may apply.

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Frequently Asked Questions

Is a proforma invoice legally binding?

No, a proforma invoice in export is not legally binding. It is a document outlining the terms and costs of a potential export transaction.

When should you send a proforma invoice?

A proforma invoice should be sent when a potential importer expresses interest in your product and requests a quote. It serves as a comprehensive price quotation and can be used to arrange a letter of credit (LoC) to pay for the goods or to arrange to finance the purchase.

What is the purpose of a proforma invoice?

A proforma invoice is an essential document in the export sales process, as it provides crucial information to both the exporter and the importer. Creating an accurate proforma invoice is critical to ensuring a successful export transaction. This invoice can be used to establish payment arrangements like a letter of credit or financing.

Can a proforma invoice be cancelled?

Yes, a proforma invoice can be cancelled if the importer and exporter agree to do so.

Published on April 28, 2023.

Sources:
1. https://www.zoho.com/invoice/guides/what-is-a-proforma-invoice-with-examples.html
2. https://www.abc-amega.com/articles/the-proforma-invoice-and-its-value-in-export-sales/
3. https://www.shippingsolutions.com/blog/how-does-the-proforma-invoice-fit-in-the-sales-process
4. https://cleartax.in/s/proforma-invoice-format
5. https://www.americanexpress.com/en-gb/business/trends-and-insights/articles/what-is-a-proforma-invoice/

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