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In Latin, pro forma means "as a matter of form." The term is used in various industries, and anytime goods or services are sold, a pro forma invoice may be used. Since it is presented before the actual sale takes place, it is not considered the official invoice. Rather, it is often used as an agreement between a buyer and seller, in which the buyer agrees to purchase an item or service from the seller for a specified price. The information on this type of invoice is typically the same as on the commercial invoice after the transaction is confirmed, though occasionally some details may change.
A typical standard invoice usually includes the date, name, and contact information of both the buyer and seller. It also breaks down the price per unit of the item or service being sold, as well as a description of each, and the total price. Additional relevant details, such as the method of payment and the date the item or service will be delivered, are also often on the commercial invoice. A pro forma invoice typically includes all of this information, though in some cases, the price may change before the transaction is completed. Some businesses only offer a more general form at first, in which case the actual details of the sale are only filled out after it has occurred.
Not everyone chooses to use a pro forma invoice, but it is often recommended before the sale is complete, so as to prevent misunderstandings. It is usually considered more desirable than a quote since so many details are included. Not only is the price on the form, but other pertinent details, such as delivery date and payment terms, are spelled out so that there are no surprises on either side. Many people that are buying a large amount of products at once, or perhaps need financing, request to see a pro forma invoice before the official transaction.
Though a pro forma invoice is rarely considered official, it is sometimes accepted when there are no standard commercial invoices available. Sometimes it is issued in order to get advance payment before a service is completed or a product is shipped. In any case, it is not typically issued until the majority of the transaction details are known and agreed upon by both parties. In general, nothing is recorded in either accounts payable or receivable until the official commercial invoice is developed.
Using a pro forma invoice is good business. I've used them many times when someone comes into the dealership interested in buying a car and leaves to think about it. It definitely helps cut down on confusion about quoted prices and eliminates "he said, she said" situations.
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