What is a proforma invoice?

Why customs work needs one

A shipment crossing a border has to be valued before anybody can decide what duty and tax apply, and that has to happen while the goods are still in transit, before a commercial invoice for a completed sale could possibly exist. The proforma fills the gap. For it to be useful it needs more than a quotation ever carries: the country of origin for each line, because preferential tariff rates depend on it, the tariff classification code, the incoterm that says who bears freight and insurance and to what point, those amounts shown separately, and the consignee as well as the buyer where they differ. Getting a code wrong is not a formality. It changes the duty rate, and a correction after arrival costs storage while the container sits at the wharf.

Deposits, and the awkward tax question

The other common use is domestic. A buyer will not release a deposit without a document, and the seller cannot issue a tax invoice for a supply that has not happened, so a proforma goes out. In Australia the wrinkle is that a deposit can itself trigger a tax point once it is applied to the price rather than held as security, which means the correct sequence is proforma out, deposit in, tax invoice for the deposit portion issued, and a final tax invoice on completion. Businesses that skip the middle step end up with money received against no tax invoice, which their bookkeeper finds three months later during a reconciliation nobody enjoys.

What it must say, and must not

Head it proforma invoice in the same size as any other title, and say somewhere on the page that it is not a tax invoice. Give it its own number series, separate from the invoice sequence, so nothing can be posted against it by accident. Carry a validity date, because prices for imported goods move with exchange rates and a proforma accepted eleven weeks later is a loss. Do not show an amount as GST payable in a way that reads like a claimable credit, and do not include an ABN in the position a tax invoice would use if the intention is to avoid the document being processed as one. The buyer's finance controls will usually catch it, and the ones that do not create a problem for both sides.

How it differs from the quotation it often replaces

A quotation is an offer that the buyer can accept, and acceptance forms a contract at that price. A proforma is a statement of what will be invoiced, generally issued after the commercial terms are already settled, and it is aimed at somebody other than the decision maker: a bank, a customs broker, a payments team. That difference in audience explains the difference in content. A quotation explains inclusions, exclusions, assumptions and what the buyer is choosing between. A proforma explains logistics, classification and payment mechanics, and assumes the choosing is over.

Closing it out

Every proforma should end in a real invoice, and the pairing should be traceable. Reference the proforma number on the tax invoice, keep both against the same job, and make sure the amounts reconcile line by line, since a freight charge that grew between quotation and shipment is exactly what a buyer disputes. Where a deposit was taken, the final invoice should show the deposit as an amount already received rather than as a discount, because those are different things in the accounts and only one of them is correct. Once the tax invoice exists, the proforma has done its job and should not be reissued or amended. Keep the pair filed together too. When a shipment is queried months later, the useful bundle is the proforma, the packing list, the commercial invoice and the payment record in one folder, because the query is almost always about the difference between two of them rather than about any single document on its own.

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