When you’re about to finalize a business transaction, the clarity and details are crucial. Imagine you’ve just agreed on terms with a supplier or a client, and you want to outline the specifics before any money changes hands.
A proforma invoice is often the first step in this process. Derived from the Latin phrase “pro forma,” which means “as a matter of form,” this document serves to formalize the agreement before the actual invoice is issued.
In this article, we’ll dive deeper into what is the proforma invoice meaning, why it’s important, and how you can use it to streamline your business transactions.
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What is Proforma Invoice?
A proforma invoice is essentially a preliminary bill of sale sent to buyers in advance of delivery or shipment of goods. It outlines the seller’s commitment to deliver goods or services to the buyer for a specific price.
This invoice is not a true invoice in the legal sense because it does not demand payment. Instead, it’s a good faith estimate detailing the items the buyer agrees to purchase and the associated costs.
A proforma invoice is typically issued once both parties agree on the terms but before any goods are shipped or services are provided. It helps clarify the terms of the trade and ensures both parties are aligned.
You will see it used in international trade often, where buyers and sellers need to agree on details like currency exchange, taxes, and logistics before finalizing the transaction. This document can be modified as negotiations continue or if the terms change before the final sale, making it a flexible tool for both parties during the negotiation phase.
Generating proforma invoices can be risky, that’s why the use of invoicing software is important. You can explore the best invoicing software in Malaysia, or download the price scheme below for more detailed information.
Proforma Invoice vs. Other Invoices
Proforma invoices have specific differences with other invoices. Either it’s proforma invoice vs commercial invoice, or other invoices. Below are the differences between proforma invoice in Malay and other types of invoices.
| Comparison Aspect | Proforma Invoice | Invoice | Commercial Invoice | Purchase Order |
| Definition | A preliminary bill of sale sent before the delivery of goods or services. It outlines the seller’s intent to deliver products or services. | A formal request for payment issued after the delivery of goods or services, reflecting the actual amount owed. | A document required for international trade that provides the value of the goods being shipped, necessary for customs and tax calculations. | A document issued by the buyer authorizing a purchase and detailing the requirements of the transaction. |
| Legal Binding | Not legally binding and does not require payment upon receipt. | Legally binding and requires the buyer to make payment. | Legally binding and essential for customs clearance; it specifies duties and taxes. | Becomes legally binding once accepted by the seller, detailing what has been ordered, at what price, and in what quantity. |
| Purpose in Transaction | Used to formalize the details of a future transaction; often used in international transactions for customs purposes but has no fiscal value. | Used to finalize the transaction and initiate the payment process after goods or services are delivered. | Used primarily in international shipping to finalize the sale and declare the goods for customs. | Used by the buyer to specify and authorize the purchase of goods or services before any invoice is issued by the seller. |
| Typical Usage | Often used to provide a clear outline of the sale terms for buyer’s approval before issuing an official invoice. | Issued to demand payment and confirm the completion of a sale. | Specifically used for the export and import of goods across international borders, detailing the shipment and its contents. | Issued to control and manage the purchasing of goods and services, often as part of the inventory control system. |
Proforma Invoice Example
To give you more understanding about how a proforma invoice in Malay looks like, we have provided a proforma invoice example below.
Proforma Invoice Overview
For International Shipments: A proforma invoice isn’t typically required for international shipments but is often used to provide an estimate of costs for transactions that are not yet finalized. It helps customs determine necessary duties with included details such as estimated price, product description, quantity, payment method, and expected delivery time. When used, it must be followed by a commercial invoice within 120 days.
For Other Transactions: Proforma invoices in non-international contexts should detail all transaction elements to avoid surprises for the buyer. They should clearly indicate that they are not final invoices with terms such as “Pro Forma Invoice” and “Not an Invoice.” Key details often include transaction date, product descriptions, quantity, selling price, and applicable fees like handling and shipping.
Proforma Invoice Use Case: How MISC Berhad Implements Proforma Invoices
MISC Berhad, a leading Malaysian shipping company, integrates proforma invoices into their business operations, significantly streamlining their billing and export processes. The use of proforma invoices by MISC Berhad exemplifies their utility in international trade, providing a clear, preliminary document that outlines the terms of trade agreements before the official transaction occurs.
When MISC Berhad receives an order for international shipment, they issue a proforma invoice. This document serves as an initial agreement, detailing the shipment’s contents, the total cost, and other terms like shipping fees and insurance costs. The proforma invoice facilitates discussions and adjustments between MISC Berhad and their international clients regarding any terms that may require modification before the final deal.
The benefits for MISC Berhad include enhanced clarity and agreement on trade terms before the shipment and official invoicing. This preliminary agreement mitigates risks of disputes over terms after the delivery, ensures compliance with international trading standards, and assists in the smooth clearance of goods through customs by providing detailed information upfront. Additionally, it allows for better financial planning and coordination with clients, enhancing overall business efficiency and customer satisfaction.
Simplify Proforma Invoice Management with HashMicro Invoicing Software
HashMicro is a software company that is known for its reliability, trusted by many companies across various sectors in Malaysia. In this case, HashMicro offers comprehensive invoicing software designed to streamline financial processes and enhance billing accuracy.
The versatility of HashMicro’s invoicing software allows for the generation of various types of invoices, not just proforma invoices. It’s an all-in-one solution that adapts to your specific transaction needs. You can experience the benefits of HashMicro invoicing software by trying out the free demo.
Features of HashMicro invoicing software:
- Custom Printout for Invoices: Tailor your invoice presentation to suit different types, enhancing professionalism and brand consistency.
- Automated Currency Update: Ensures all transactions are calculated with the most current exchange rates, reducing errors in international dealings.
- Tax Regulation Compliance: Stays updated with the latest e-invoice Malaysia tax regulations, ensuring your invoicing is always compliant with legal standards.
- Bank Integrations: Streamlines payment processes by integrating directly with major banks, facilitating smoother transactions.
- Auto Follow Up Customer Statement: Automatically sends follow-up statements to customers, ensuring timely payments and maintaining consistent communication.
Conclusion
Proforma invoices play a crucial role in international and domestic trade by providing a detailed preview of the commercial terms between buyers and sellers. They help manage expectations and ensure agreement on details before any financial commitments are made.
While proforma invoices are beneficial, creating them manually involves risks such as human errors and inconsistencies, especially when dealing with complex international regulations and multiple currencies. The use of advanced invoicing software becomes indispensable in mitigating these risks.
HashMicro Invoicing Software offers a robust solution to automate and manage your invoicing needs effectively. From generating different types of invoices, including proforma, to ensuring compliance with the latest tax regulations and seamless bank integrations. Make your invoicing hassle-free by trying the free demo now!
