Using a template to write invoices saves you a fair bit of time. While you still have to enter all of the payment information for each order on your own, sample invoices provide a ready-made design that you just have to fill in using the relevant company and customer data. But how does the perfect invoice template really look? And what should an invoice template consist of?
If an invoice is not issued for payment reasons, and only for customs reasons, this is known as a pro forma invoice. You will encounter documents like these in international trade relations in particular. We have summarized when pro forma invoices are used and what purpose they serve when it comes to exporting goods.
What is a pro forma invoice?
The pro forma invoice is an invoice that does not require any payment on the recipient’s part. Instead, the document is created pro forma (Latin term meaning “for the sake of form”) to comply with legal requirements – for example when exporting goods to non-EU countries (e.g. China, Japan, or Switzerland). Non-EU countries are also referred to as third countries.
The pro forma invoice is an exclusively informative invoice that is primarily used in foreign trade. In particular, the pro forma invoice is intended to inform customs authorities about the type, scope, and value of import or export goods. It’s not usual to ask the recipient for payment with a pro forma invoice.
Function of the pro forma invoice
The pro forma invoice is primarily used in foreign trade.
Commercial transactions with third countries are subject to mandatory declaration. If you export goods to a third country, you must declare their value to customs. And this also applies if the goods are exported free of charge for the recipient – for example in the case of sample shipments, gifts, donations, or a free replacement delivery as part of the guarantee or as a gesture of goodwill.
In such cases, a pro forma invoice is issued instead of a commercial invoice for customs purposes. This only declares the value of the exported goods and therefore has a purely informative function.
In addition, the pro forma invoice is used as an advance copy of a commercial invoice. For example, if the recipient pays in advance. In this special case, the pro forma invoice serves as a payment request.
Pro forma invoices are also used for transactions processed by letters of credit or as a prerequisite for issuing import licenses. The pro forma invoice is then similar to an offer.
A commercial letter of credit (CLC) is a payment model where a bank is contractually obliged by an account holder (letter of credit applicant) to make a payment to a third party (letter of credit beneficiary) upon receipt of certain documents. In foreign transactions, letters of credit are sometimes ordered by importers in order to guarantee exporters payment for the receipt of goods.
In general, a pro forma invoice does not signify a booking neither at the sender’s end nor at the recipient’s end.
A pro forma invoice can also be used as a substitute document for accounting if the actual invoice has not yet been received, but you already have to make a booking. If a service has been performed and you know what it will cost, but no invoice has been received yet, you can issue a pro forma invoice for the correct amount. As soon as the proper invoice is received, it replaces the pro forma invoice. Supporting documents or internal receipts are issued, for example, for accruals and deferrals at the end of the year.
Structure and content of a pro forma invoice
The pro forma invoice is essentially the same as the commercial invoice, but must be identified explicitly as a pro forma invoice. We recommend that you use “pro forma invoice” for the subject line.
There is no legislation to denote what belongs in a pro forma invoice. However, we recommend that you follow the guidelines for creating commercial invoices.
If you issue a pro forma invoice within the scope of foreign trade, we recommend that you list all mandatory data for export invoices in order to sufficiently inform the importer and the relevant authority of the importing country about the details of the shipment.
A commercial invoice is an invoice for foreign business. In order for imported goods to clear customs successfully, commercial invoices must contain, in addition to the mandatory details for domestic invoices, additional details which enable customs employees to assess the goods under customs law. It’s also important to adhere to the import regulations of the destination country.
Required details on commercial invoices usually consist of:
- The time and place where the products/services are sold
- The seller’s name, address, contact info, tax ID number (if applicable)
- The buyer’s name, address, contact info, tax ID number (if applicable)
- A detailed description of the merchandise e.g. HS Number, name of each item, grade or quality, country of origin, currency, quantity, and price per unit, etc.
- The country of shipment
- The appropriate trading term and location associated with the term
- All goods and services provided by the buyer for producing the merchandise (e.g. materials and tools used)
- A signature, signor’s title, and date of signing
- Any additional information required e.g. import license requirements, additional certifications required by the buyer’s country, U.S. government-issued certifications, U.S. export controls, etc.
The invoice should be signed by hand and, if necessary, stamped with a company stamp.
Pro forma invoice vs. commercial invoice
The pro forma invoice is distinguished from the commercial invoice by its name and function. On a recipient’s pro forma invoice, you clearly state that the invoice was created for formal reasons only and therefore does not contain a payment request. Unlike in the commercial invoice, you do not specify a payment amount in the pro forma invoice.
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