The term "pro forma" (Latin "as a matter of form") is a term applied to practices that are perfunctory, or seek to satisfy
the minimum requirements or to conform to a convention or doctrine. It has different meanings in different fields.
A "pro forma invoice" is a price quotation prepared in the form of an invoice, which is different from commercial invoices in that
it is used to create a sale and is sent in advance of the commercial invoice. The content of a pro forma invoice
is almost identical to a commercial invoice and is usually considered a binding agreement although the price might
change in advance of the final sale.
In some countries, the U.S. for example, Customs may accept a pro forma invoice (generated by the US importer
and not the exporter) if the required commercial invoice is not available at the time when filing
entry documents (entry - the process of filing documents with U.S. Customs at the port of entry to get goods
released from Customs). U.S. Customs may use a pro forma invoice to assess duty and examine goods.
The importer on record however, is required to post a bond and produce a commercial invoice within 120 days
from the date of entry. If the required commercial invoice is needed for statistical purposes the importer has
to produce the commercial invoice within 50 days from the date Customs releases the goods to the importer.
Here are some reasons why pro forma invoices are widely used in international transactions:
Keep the following points in mind when your company is asked to produce a pro forma invoice:
- Considered a binding agreement.
- May be required by some countries as part of their import licensing procedures.
- Bankers and financial institutions use pro forma invoices to open letters of credit for importers.
- Easily recognized due to their similarity to commercial invoices.
- Their invoice format encourages exporters to include all the information that will appear in the commercial invoice.
Remember that pro forma invoices are formal offers to sell. When the buyers agree with all the terms and conditions of
the pro forma invoice the result is a purchase order sent by the buyer, which finally leads to a sales contract that is,
if the buyer and the exporter agree to have a formal sales contract. The pro forma and purchase order must be compared before goods
are shipped to check for discrepancies. Should there be a discrepancy, the buyer should be promptly notified to correct any errors.
- The title of the document should clearly say "Pro Forma Invoice"
- Exporter's name, address, telephone number and e-mail address.
- Sold to name, address, telephone number and e-mail address.
- Pro forma invoice reference number.
- Date issued. The date of the pro forma invoice is the date of the quotation.
- Customer purchase order number, if available.
- Terms of payment (letter of credit, documentary collection, pre-payment, T/T, open account etc.)
- Estimated date of shipment.
- If more than one product, number each product beginning with number 1.
- Quantity shipped.
- Full product description, include the Harmonized Schedule (HS) code when available
- Indicate clearly currency used (USD, euro, yen etc.)
- Unit pricing should be included.
- Unit pricing should be extended by the quantities quoted to form the line item total.
- Any additional seller-provided services should be itemized and should be added to reach a grand total.
- Terms of sale using INCOTERMS 2000 (FOB, CIF, CFR, DDU etc.)
- Identify the number of unit measure, weight, case, pallets, box, etc.
- The country of origin of the product.
- Validity period, never make open-ended commitments remember that the validity date can be changed.
- Must be signed and title be included.
Pro forma invoice sample
Brentwood, California 9400 USA
111 Any Street
E-mail Address: XXXXXXX
|Reference No. XXXX
Customers Purchase Order No.: XXXX
Payment Method: XXXX
Estimated Date of Shipment: XXXX
||*HS# 0000- 00 or
||Five (5) Boxes
||Gross weight: 25lbs.
||**CIF Incoterms 2000, Shanghai
Country of Origin: ___________________________________________
Authorized signature/Title: ___________________________________
The above offering is based on current prices and is valid 60 days from invoice date.
*Harmonized Tariff Schedule
**Cost Insurance and Freight (Incoterms 2000)
Accounting Pro forma Invoices
In accounting, pro forma earnings are those earnings of companies in addition to actual earnings calculated under the United States
Generally Accepted Accounting Principles (US GAAP) in their quarterly and yearly financial reports.
The pro forma accounting is a statement of the company's financial activities while excluding "unusual and nonrecurring transactions"
when stating how much money the company actually made. Expenses often excluded from pro forma results include company restructuring costs,
a decline in the value of the company's investments, or other accounting charges, such as adjusting the current balance sheet to
fix faulty accounting practices in previous years.
Companies that report a pro forma income statement or balance sheet usually do so because the events being excluded were unusual so
the US GAAP financial reports required by law are misleading to investors and potential investors. The crisis that happened this
last quarter is not going to recur in future quarters, so the pro forma results can be used by investors to forecast what
a "regular" quarter might portend in the future.
Critics note that pro forma numbers typically look more profitable than US GAAP numbers, and state that many companies intentionally
use pro forma results in order to mislead investors into believing the company is in much better financial shape than it is;
that there is no defined meaning or accounting standard for "pro forma" and that it is therefore impossible to make
an "apples to apples" comparison between companies with pro forma results in the way that GAAP accounting allows; and that
most "unusual events" reported as such are part of the ordinary course of business and should be reported as such. Most companies
in most capitalist countries restructure themselves often, for example, so, it is argued, it is dishonest to claim that
restructuring charges are unusual, one-time events that investors should not anticipate in the future.
There was a boom in the reporting of pro forma results starting in the late 1990s, with many dot-com companies using the
technique to recast their losses as profits, or at least to show smaller losses than the US GAAP accounting showed.
The U.S. Securities and Exchange Commission requires publicly traded companies in the United States to report
US GAAP-based financial results, and has cautioned companies that using pro forma results to obscure US GAAP results
would be considered fraud if used to mislead investors.
Pro forma in Business
In business, pro forma financial statements are prepared in advance of a planned transaction, such as a merger,
an acquisition, a new capital investment, or a change in capital structure such as incurrence of new debt or issuance of equity.
The pro forma models the anticipated results of the transaction, with particular emphasis on the projected cash flows,
net revenues and (for taxable entities) taxes. For example, when a transaction with a material impact on a company's
financial condition is contemplated, the Finance Department will prepare, for management and Board review,
a business plan containing pro forma financial statements demonstrating the expected impact of the proposed
transaction on the company's financial viability. Lenders and investors will require such statements to structure
or confirm compliance with debt covenants such as debt service reserve coverage and debt to equity ratios.
Similarly, when a new corporation is envisioned, its founders will prepare pro forma financial statements for
the information of prospective investors. Pro forma figures should be clearly labeled as such and the reason for
any deviation from reported past figures clearly explained.
In trade transactions, a pro forma invoice is a document that states a commitment from the seller to sell goods to
the buyer at specified prices and terms. It is used to declare the value of the trade. It is not a true invoice,
because it is not used to record accounts receivable for the seller and accounts payable for the buyer. Simply,
a 'Proforma Invoice' is Confirmed Purchase Order where buyer and Supplier agrees on the Product Detail and its cost
(usually-Supplier currency) to be shipped to buyer. Sales quotes are prepared in the form of a pro forma invoice
which is different from a commercial invoice. It is used to create a sale and is sent in advance of the commercial invoice.
The content of a pro forma invoice is almost identical to a commercial invoice and is usually considered a binding agreement
although the price might change in advance of the final sale.
Banks usually prefer a pro forma invoice to a quotation for establishment of a letter of credit or for advance payment
by the importer through his bank.
In some countries, customs may accept a pro forma invoice (generated by the importer and not the exporter) if the required
commercial invoice is not available at the time when filing entry documents at the port of entry to get goods released from customs.
The U.S. Customs and Border Protection, for example, uses pro forma invoices to assess duty and examine goods,
but the importer on record is required to post a bond and produce a commercial invoice within 120 days from the date of entry.
If the required commercial invoice is needed for statistical purposes, the importer has to produce the commercial
invoice within 50 days from the date Customs releases the goods to the importer.
Pro forma in Law:
In law, pro forma court rulings are intended merely to facilitate the legal process (to move matters along).
Also, pro forma audiences are used to obey to a formal demand. For example, one pro forma audience may be heard for a judge to order
the production of a certain proof or to schedule another date.
Pro forma in Government:
In certain Commonwealth nations with a Westminster system, such as the United Kingdom, Canada, and Australia, pro forma bills
are introduced immediately before consideration of the Speech from the Throne. Pro forma bills are incomplete pieces
of legislation and undergo only the first reading stage. They symbolize the authority of the parliament to discuss matters
other than those specified by the head of state, for which ostensibly parliament was summoned. After first reading,
the bill is never considered further.
In the Parliament of the United Kingdom, the equivalents are the Outlawries Bill in the House of Commons and the Select
Vestries Bill in the House of Lords. In the Parliament of Canada, such bills are titled Bill C-1, An Act respecting the
Administration of Oaths of Office, and Bill S-1, An Act relating to Railways in the Canadian House of Commons and Canadian Senate,
respectively. In the Parliament of Australia and the parliaments of the Australian states and territories, the pro forma
bills consist only of a short title, and do not proceed beyond the first reading stage.
In the United States federal government, either house of the United States Congress (the United States House of Representatives
or the United States Senate) can hold a pro forma session at which no formal business is conducted. This is usually to fulfill
the obligation under the Constitution "that neither chamber can adjourn for more than three days without the consent of the other."
Pro forma sessions can also be used to prevent the President from making recess appointments, pocket-vetoing bills,
or calling the Congress into special session. Similar practices may exist in the state legislatures.
- U.S. Small Business Administration, Breaking Into The Trade Game: A Small Business Guide.
- pro forma session". Senate Glossary. United States Senate. http://www.senate.gov/reference/glossary_term/pro_forma_session.htm. Retrieved on 2007-11-17.
- Bresnahan, John (2008-02-18). "Democrats set pro forma sessions to avoid 'special session' on FISA". The Crypt (The Politico).
http://www.politico.com/blogs/thecrypt/0208/Democrats_set_pro_forma_sessions_to_avoid_special_session_on_FISA.html. Retrieved on 2008-07-18.
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