Definition
A proforma invoice is a preliminary bill of sale sent to a buyer before goods are shipped. It outlines the products, quantities, prices, and terms of the proposed sale. It is essentially a formalized quote.
Why it matters for traders
Proforma invoices are required for:
- Opening letters of credit (banks need the proforma to issue the LC)
- Obtaining import licenses in many countries
- Processing advance payments from buyers
- Customs pre-clearance in some jurisdictions
Key differences from a commercial invoice
| Proforma Invoice | Commercial Invoice |
|---|---|
| Issued before shipment | Issued after shipment |
| Not a payment demand | Is a payment demand |
| Used for LC applications | Used for customs valuation |
| May change before shipment | Final and legally binding |
| Not used for accounting | Used for accounting and tax |
What a proforma invoice includes
- Seller and buyer details
- Proforma invoice number and date
- Detailed product description with HS codes
- Unit prices and total value
- Currency and payment terms
- Incoterm
- Estimated shipping date
- Validity period of the quote
- Bank details for payment
Operational example
A buyer in Kenya wants to import textiles from India and needs to open an LC. The Indian supplier sends a proforma invoice for USD 45,000 covering 2,000 garments. The Kenyan buyer takes this proforma to their bank, which uses it as the basis for issuing the LC. After shipment, the supplier issues a commercial invoice that may differ slightly in quantity or value — the final amount is what gets paid.