Introduction

A proforma invoice is little more than a preadvice of what will stand in the commercial invoice once negotiations have been completed. Indeed, the proforma invoice and the commercial invoice often look exactly the same, except that it should state clearly "proforma invoice" on this document, whereas the commercial invoice will state "invoice" or "commercial invoice". The proforma invoice serves as a negotiating instrument. The initial proforma invoice often sets the stage for the first round of negotiations if the exporter and importer have not yet had any real discussions.

For example, the importer may e-mail the exporter asking him/her to submit a proforma invoice for the supply of 100 pumps according to a set standard. The exporter then submits a proforma invoice to the potential importer outlining a desciption of the product, what the price is, what the delivery terms will be, what the payment terms will be, as well as any other information that may be pertinent to the sale. The importer will most likely reply to the proforma invoice requesting/negotiating different requirements such as a lower price, longer terms of payment, different methods of payment, a different delivery schedule and may even request changes to the product specifications. Based on these requests from the importer, the exporter may choose to comply or to refer back to the importer (probably via telephone, fax or e-mail) to discuss or negotiate compromises to these requirements. When the importer and exporter come to an agreement, a second (sometimes even third or fourth) proforma invoice will be exchanged between the two parties. This final proforma invoice sets the stage for the further processing of the order.

In other instances where the exporter and importer have met before and have already discussed and thrashed out an agreement perhaps in a faceto-face meeting, only one final proforma invoice is necessary to confirm that the two parties are indeed in agreement. Every proforma invoice should be as precise and as explicit as possible to ensure that both parties understand each other. If the importer is satisfied with this final proforma invoice, he/she will request their bank to issue an L/C on the strength of information stipulated in the proforma invoice. For this reason, it is essential that the proforma invoice be extremely accurate, clear and concise. Any errors or misunderstandings will be transferred to the L/C and will cause problems, frustrations and delays down the line. What is more, the proforma invoice is also important to the importer for the purpose of obtaining an import permit and foreign exchange allocation within his country. At the same time, the exporter may use the proforma invoice and acceptance of the order from the importer to obtain funding to pay for the manufacturer of the goods concerned.

Details pertinent to the proforma invoice

The following details are pertinent to the setting up of the proforma invoice and need careful attention:

• A complete and clear description of the goods in question
• The quantity of goods in question including the number and kinds of packaging involved
• The total price of the goods (and unit price where applicable)
• The currency in which the goods will be sold (e.g. US dollars or rands)
• The likely delivery schedule and delivery terms
• The physical addresses of both the exporter and importer (also referred to as the consignee)
• The payment methods, for example cash in advance or L/C
• The payment terms, for example 30 days on sight
• The Incoterm to be used
• Who is responsible for the banking fees and other related costs (insurance and freight costs are covered by the incoterm in question)
• The exporter's banking details
• The country of origin of the goods
• The expected country of final destination
• Any freight details such as the port of loading and discharge
• Any trasshioment requirements
• Any other information relevant to the order

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