Exporting is undeniably a tough deal to crack compared to trading domestically because of the legal formalities and the never ending paper work that needs to be completed timely, for this reason a guide or manual such as this article can help an exporter create a proforma invoice for export.
This article aims to familiarize the audience with the concept of proforma invoice, how to create one, and its components.
What Is a Proforma Invoice?
A proforma invoice, also known as “bill of sale”, is usually the first document that an exporter creates. It is sent by the exporter to the importer before the delivery of goods or services to receive some kind of confirmation from the importer regarding his intentions for the goods.
Although the proforma invoice is not a binding contract, it will still set the tone of the transaction between a buyer and a seller. Exporters create an invoice of this nature to provide the buyers with an estimate for the goods.
The invoice roughly contains information regarding the goods such as prices, the total export cost, and quantity and weight of the goods etc. the terms discussed in this invoice are negotiable given that they document is not final in nature, but when it is created mindfully, it may resemble a final document.
Why Should an Exporter Create a Proforma Invoice?
The proforma invoice can act as a negotiation tool between an exporter and an importer regarding the prices etc. the buyers and sellers can revise the terms of sale present in the invoice if either the buyer or seller is unhappy with the information provided in the invoice.
A proforma statement is meant to create a level of commitment between the buyer and the seller; mostly the inadequacy of information provided to the buyer is the reason behind the reduction in sales.
An offer and agreement are the basis of a valid contract, and in this case, the proforma invoice sent by the exporter is an offer to sell goods, while the acceptance of the terms mentioned in the invoice by the importer is an agreement that results in a contract later on.
Components of a Proforma Invoice
A proforma created for international trade is much more complicated than the one created for domestic sale of goods, but the following main components are mandatory to mention:
1. Details of the Goods
If the invoice is created accurately, it should draw a clear picture of the goods in the buyer’s mind; therefore, the invoice should contain the nature of the goods, dimensions, and weight.
It is crucial to add the price of the goods in the proforma invoice. Though the invoice is not final, and terms may be negotiable, the price mentioned should account for all the expenses including, transportation, logistics, tariffs etc. Remember prices should be based on market research conducted by exporters.
3. Expiration Date of the Invoice
The expiration date of the invoice should be included because the prices of the products may vary in some countries given the exchange rate.
4. Transportation and Logistics Details
The invoice should have the details of how the goods will be transported to the location, and how will be distributed to the importer in case the importer agrees upon the terms and conditions.
5. Payment Methods
The transactions taking place with overseas clients can be unpredictable for many reasons, but most importantly due to issues occurring related to payment methods.
When an exporter mentions the payment terms in his export invoice, it may help the importer in case he needs any financial assistance given the details present.
How to Create a Proforma Invoice for Export
- The first step is to add a header to the invoice. The header should contain the name of the company along with the logo to represent the export company and make the invoice easily recognizable.
- The next step is to add the importers details such as his name, company’s name, company’s address, phone number, postal code, email, etc.
- The invoice should also include the name, company’s name, company’s address, phone number, postal code, email, etc of the exporter.
- The invoice should have a distinctive reference number, date of submission, and date of expiration. The invoice number can be of choice of the exporter, and it will help both the importer and exporter to stay organized throughout the process.
- Shipment details are to be mentioned at the beginning of the invoice, and should include the total quantity and weight of the goods and the medium of transportation for instance, by air, rail, ocean, or road etc.
- Moreover, if the company is exporting products belonging to different product lines or generally different products by any means, then each product should be written separately.
- A description of each product that is being exported should be provided with the quantity, per unit price, tax amount, and the total price of it.
- The next detail to add is the terms and conditions of the invoice and the payment method that the exporter is putting forward.
- At the end of the invoice add some additional information such as ‘reason to export’ to make the proforma invoice look promising and similar to a commercial invoice.
- Finally, the last bit of detail that needs to be added in the invoice is the port of embarkation and the port of discharge.
The process of export is complicated and time taking and it can involve ambiguity due to the distance between the buyer and seller, therefore a proforma invoice can help deliver adequate information to the buyer of the goods to decide whether to make any changes in the terms or not.