What is it, what it contains and how to use it.

A proforma invoice is a preliminary bill or estimate of costs sent to a potential buyer before a sale is finalised.

It outlines the details of a proposed transaction, including the goods or services, quantities, prices, and other relevant information.

Unlike a final invoice, it’s not legally binding and doesn’t represent a formal demand for payment.

Key characteristics of a proforma invoice

• Issued before a sale is confirmed and the goods/services are delivered.
• Not legally binding
• It’s not a formal request for payment and doesn’t create a contractual obligation.
• It provides the buyer with an estimate of the costs and terms of the proposed sale.
• The details on the proforma invoice may be adjusted before the final invoice is issued.

When to use a proforma invoice

• Before a sale is finalised: When the buyer and seller are still negotiating the details of the transaction.
• For international trade: To comply with customs requirements and for payment arrangements.
• To obtain a preliminary estimate: When the buyer needs to know the costs before making a commitment.
• To clarify terms and conditions: To ensure both parties have a clear understanding of the proposed sale.

Example: A seller might send a proforma invoice to a potential buyer outlining the cost of a custom-designed machine, including the materials, labour, and any applicable taxes and shipping charges, before the final order is placed.

Creating a proforma invoice which serves as a preliminary bill of sale, can be detailing key terms and conditions before a transaction is finalised.

To ensure clarity and conformity in international trade, here are important items and conditions to include:

1. Basic Seller & Buyer Information

• Seller’s name, address, and contact details.
• Buyer’s name, address, and contact details.
• Invoice number and date of issuance.

2. Product Details

• Description of goods (Soybeans, grade, moisture content, impurity percentage, packaging type).
• Quantity (Metric Tons or Units).
• Unit Price (Price per metric ton or unit).
• Total Price.

3. Payment Terms

• Accepted payment methods (Letter of Credit, Bank Transfer, etc.).
• Deposit requirements (if applicable).
• Currency of transaction (USD, EUR, LKR, AED, INR, etc.).
• Payment deadline.

4. Delivery Terms & “Incoterms“

• CIF (Cost, Insurance, and Freight): Seller covers cost, insurance, and freight to Ningbo.
• FOB (Free on Board): Seller ensures goods are loaded onto the vessel, buyer handles freight.
• EXW (Ex-Works): Buyer arranges transportation from the seller’s warehouse.

5. Packaging & Labeling Requirements

• Specific instructions on bagging (weight per bag, material type).
• Markings, barcodes, and identification labels.

6. Inspection & Quality Assurance

• Pre-shipment inspection requirements.
• Third-party verification details (quality certificate, grade confirmation).
• Rejection policy for substandard goods.

7. Insurance & Risk Allocation

• CIF shipments must include insurance coverage to Ningbo.
• Liability clauses in case of damage or contamination.

8. Shipping & Logistics Details

• Mode of transport (Sea Freight).
• Estimated shipment and delivery dates.
• Port of loading (Sri Lanka) and discharge (Ningbo, China).
• Vessel name and tracking details.

9. Customs & Regulatory Compliance

• Required export/import permits.
• Certification of origin.
• Tariff classification details.

10. Force Majeure Clause

• Covers unforeseen events like natural disasters or transportation disruptions.

11. Dispute Resolution & Governing Law

• Arbitration terms.
• Applicable governing law (Sri Lanka/China/international trade laws).