You have taken all of the steps in finding appropriate products to source from China, contacted Sourcing Nova and have made preliminary arrangements with a purchase order.  The first thing necessary is to secure a pro-forma invoice, PI.  This is an invoice that will describe your product details and the necessary pricing information that goes with it.  The PI can also double as a sales contract, and this is a common occurance with Chinese manufacturers.  They do not, as a general rule, send sales contracts.  As long as you have detailed the information necessary about your products, you will be set with your first order.

pro forma meaning

When you get your PI, review it carefully for all of the necessary details – quantity, size, weight, color, materials, packaging and the like.

The proforma invoice will also have necessary information on the part of the manufacturer – banking information, payment terms and pricing dates.  Currency exchange rates do fluctuate, so the terms will be accurate to a certain day.

You review your proforma invoice and send your deposit payment.  The manufacturer will start on your product order at that time.  The lead day commences on receipt of the deposit.

The initial deposit, often paid via TT and based on the proforma invoice, will start the product manufacturing.  Within 10 days to a week before the completion of your products, the final balance, also listed on the proforma invoice, is due.  Sourcing Nova will arrange shipping after the products are complete.

Pro Forma Meaning

No matter which specific word or set of words used, the purpose behind this document has the same meaning.  A pro forma invoice is a non-binding invoice you receive from your product manufacturer.  The invoice will outline your purchased products and other pertinent information including package weight and transport charges.

Typically, the invoice is provided along with a quote for the customs department of the importing country and in the process, streamlines the importation of products.

 

Differences between a commercial invoice and a pro forma invoice

There are some key differences between a commercial invoice and the pro forma invoice.  These help you get a better understanding of each.

pro forma invoice vs commercial invoice

When issued

Commercial invoice – You will get this before you products are completed and shipped to you or your location.  This represents the final amount of your product order

Proforma invoice – These are issued early before the manufacturing begins.  You will pay your deposit on your product order with the proforma invoice.  Production on your products will start on receipt of deposit.

 

Purpose

Commercial invoice – The final document detailing the total amount due for products manufactured, less the initial deposit.

Proforma invoice – An preliminary invoice detailing costs based on currency exchanges and product design.  This is used to set your deposits and payments.

 

Format

Commercial invoice – This will have all of the pertinent business information, including logo, contact information, billing address, information, terms and conditions.

Proforma invoice – This will have the same information as a commercial invoice but will be clearly labeled as ‘proforma.’

 

Accounting and bookkeeping

Commercial invoice – A necessary document for accounts payable and receivable.  This should be filed and kept on hand in case of an audit.

Proforma invoice – This is used primarily for the initial deposit and confirmation of the products as ordered.  Keeping for accounting records is not always necessary but strongly recommended.

 

Legal

Commercial invoice – The invoice is a legally binding agreement between you and the manufacturer.  The terms must be met.

Proforma invoice – A non-binding document for information only because of certain factors like currency fluctuation.

 

Prices and pricing

Commercial invoice – Represent the final costs of production based on the currency exchanges of that time.

Proforma invoice – Represent the initial deposit on products based on the currency exchanges of that time.

 

Time

Commercial invoice – The invoice agreement is valid until the terms of the invoice are met (paid).

Proforma invoice – This has a short window of validity and can be retracted at any time.

 

Pro forma template

pro forma template

There are any number of pro forma invoice templates and examples on line.  There is no standard way a pro forma invoice should look, but it is strongly recommended that both the proforma invoice and standard invoice mirror one another with the exception of clearly noting one as the proforma invoice.  It is a good idea to have the following information included on the proforma invoice:

·         Issue date

·         Contact information for you and the manufacturer

·         Product details and prices

·         Tariffs, duties and taxes

·         Shipping costs

·         Total payment due

It is important to remember that a proforma invoice is clearly labeled as such and often will have a number that will closely match the final invoice.

For example, a proforma invoice may be PI03771018, and the final invoice will be labeled CI03771018.

The other information included is the due date of final payment and date of delivery.

 

Creating a Pro Forma Invoice

Microsoft Office products Word and Excel offer plenty of templates for pro-forma invoices.  These will take time and attention to details to set up and design correctly for any specific needs. There is also the chance of the shipping company entering data incorrectly, and this can be catastrophic in your accounting processes.

There are commercially available software programs for invoices and invoicing, but there are common problems with software.  The main one is compatibility.  Someone in your chain may not have the same invoicing software, and you will run into problems.  Secondly, software can be terribly fraught with issues and bugs.  Excel is almost completely universal, stable and easily transferable.

Sourcing Nova strongly recommends Excel pro-forma invoice templates.

However, you can expect a pro-forma invoice to contain the following information:

·         Product descriptions – These will include the country of origin, China

·        Product classification – The six-digit Harmonized System or Schedule B Number the Customs office will use for taxes.

·        Invoice number – The number on the pro-forma and final invoice is likely to be the same but with a different prefix as discussed above.

·         Prices

·         Delivery terms – Origin and location

·         Expiration date – Remember; Pro-forma invoices do expire.  Standard invoices do not.

 

 

What is a pro-forma financial statement

A pro forma financial statement is a report that uses a guess and hypothetical situations based on past events and potential events in the future.  Budgeting is a form of this.

 

Purchase order vs. commercial invoice

Sourcing Nova covered this information previously, but it bears repeating.

A purchase order is issued by the importer, you, for your products.  A commercial invoice is issued by the exporter, the manufacturer, and is the bill for your products.  Sourcing Nova will typically handle proforma and commercial invoices as you make payments.

Final Thoughts

It is important to remember a pro-forma invoice is used to clarify your products as ordered and to pay an initial deposit.  It is a tool for you to have on hand in helping calculate your final invoice on products.

Sourcing Nova will help you with the pro-forma and commercial invoices as part of our services.  Start your product ordering today.  Leave us a comment below on what you would like to order for your e-store.