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.
What is the difference between a proforma invoice and a quotation?
In reality, there is very little difference in function between the two and the proforma invoice is really a quotation in invoice form; in other words. the difference really comes about in terms of the structure and layout of the proforma invoice/quotation. A quotation appears more like a business letter describing a written offer, while a proforma invoice appears exactly the same as a invoice (except with the words "proforma invoice" written on the document). The proforma invoice essentially serves as a 'quotation' that sets the road to further negotiations. Some exporters choose to prepare an 'official' quotation, while others prefer to use the proforma invoice as their quotation. In fact, the quotation can contain the same information as a proforma invoice.
The role of the proforma invoice in the negoiation process
Assuming that an importer e-mails you - an exporter - asking you to submit a proforma invoice (or a quotation) for the supply of 100 pumps according to a set standard. You would then prepare and submit 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 your 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, you 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 you and the importer finally come to an agreement, a second (sometimes even third or fourth) proforma invoice will be exchanged between the two parties. This final proforma invoice - accepted by the importer - sets the stage for the further processing of the order. You should be aware that the importer may use the proforma invoice to request foreign exchange within his/her country if his/her currency is not freely convertible. The proforma-invoice can also help the importer apply for a letter of credit at his/her bank.