What is a proforma invoice? Explanation and examples

Invoicing is a crucial part of maintaining clear communication and accountability in business transactions. A proforma invoice helps set expectations early, providing an overview of the costs, terms, and details of a sale before the transaction is finalized.

Whether you’re working with international clients or managing custom orders, proforma invoices offer transparency and professionalism at every stage.

What is a proforma invoice?

A proforma invoice is a preliminary bill of sale sent to a buyer before a sale is finalized. It acts as a formal estimate, detailing goods or services to be provided, pricing, payment terms, and other transaction details. While it resembles a standard invoice, a proforma invoice is neither a demand for payment nor a legally binding document. Instead, it’s a tool for alignment.

Proforma invoices are commonly used in international trade to facilitate customs clearance, provide documentation for financing, or finalize the terms of a sale before shipment. The purpose of a proforma invoice is to offer both parties a clear picture of the transaction without committing either to a legally enforceable agreement.

However, it’s important to note that you shouldn’t make a payment based on a proforma invoice alone; a final invoice must follow for formal invoice processing and proper recordkeeping.

Required proforma information to include

A well-prepared proforma invoice should include all necessary details to ensure accuracy and transparency. These details may vary slightly depending on the nature of the transaction or shipment. Here’s what to include:

• Seller’s information: Your business name, address, contact details, and tax identification number
• Buyer’s information: The buyer's name, address, and contact details to ensure clear communication
• Invoice number and date: A unique invoice number and issue date for accurate invoice tracking and recordkeeping
• Itemized goods or services: Detailed descriptions, quantities, unit prices, and total costs for each line item
• Payment terms: Specify accepted payment methods, due dates, and any applicable conditions
• Shipping costs and details: For goods, include the shipping method, origin and destination ports, and estimated delivery date
• Taxes and fees: Clearly outline any applicable taxes, customs duties, or additional charges
• Valid period: Indicate how long the proforma invoice remains valid to avoid confusion

Depending on the nature of the transaction, you may not need this much detail (e.g., for digital services). However, for international shipments, including all necessary information for customs purposes helps ensure compliance and avoid delays.

Proforma invoices bridge the gap between initial discussions and final transactions, ensuring clarity and alignment, reducing misunderstandings, and streamlining the sales process.

When should your business use a proforma invoice?

Use a proforma invoice when you need to provide detailed transaction information upfront without issuing an official invoice. They’re especially valuable for businesses dealing with custom orders, international trade, or situations where pricing and terms need pre-approval before proceeding.

Use case 1: Pre-approval for international shipments

A clothing manufacturer exporting goods to an overseas retailer issues a proforma invoice detailing costs, international shipping fees, and delivery timelines. The buyer uses this document to arrange financing and ensure customs pre-clearance, helping to avoid delays.

Use case 2: Custom orders for specialized products

A tech company building custom software for a client issues a proforma invoice outlining development costs, payment milestones, project timelines, and the total amount due. This ensures both parties are aligned on expectations before work begins.

Proforma invoices give businesses a clear way to set expectations and ensure all parties are on the same page, reducing risks and fostering trust.

What’s the difference between proforma invoices and other invoices?

Proforma invoices differ from other types of invoices, like commercial invoices, because they are not final or legally binding—they’re simply estimates or preliminary agreements.

Here’s how they compare to other common invoice types:

Proforma invoices are unique because they focus on pre-transaction details, ensuring clarity before finalization. Choosing the right invoice type depends on the stage and purpose of your transaction.

How to create a proforma invoice

Creating a proforma invoice is straightforward. Start with a clear template and include essential details to ensure it’s both professional and comprehensive.

As stated earlier, here’s what you’ll need:

• Your company name, contact details, and logo
• Buyer’s name and contact information
• Unique invoice number and issue date
• Description of goods or services, including quantities and prices
• Payment terms and shipping details (if applicable)

For detailed instructions, check out our step-by-step guide for how to create and fill proforma invoices. If you need a proforma invoice template to get started quickly, download our free version below.

A well-crafted proforma invoice helps build trust and ensures your transactions run smoothly.

Simplify every step of invoicing with Ramp

Whether they’re proforma or final, managing invoices should be seamless, not stressful. Ramp simplifies every step of the invoicing process, empowering your team to save time and work smarter:

• Automate invoice management: Ramp’s powerful invoice management software simplifies tracking, approvals, and payments, eliminating repetitive manual work
• Sync seamlessly with accounting tools: Integrate with QuickBooks, NetSuite, and other accounting platforms for accurate financial data
• Get real-time insights: Monitor payment statuses and cash flow instantly, helping you make smarter financial decisions

Learn more about how Ramp’s accounts payable automation software helps teams handle a month’s worth of invoices in minutes.