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Are you a business owner who deals with other businesses on a regular basis? How often have you encountered the troubles that come with shaking hands on a deal before negotiating all the terms?
Many a time, a simple deal can go south due to disagreements later in the process and can cause your revenue to take a small halt or maybe even a little crunch.
Let’s understand this better with an example.
Company X received an order of 10,000 boxes of automobile gear from Company Y. However, without proceeding with a negotiation or discussing the terms, Company X starts manufacturing the gear. After 2 months when all the gears are manufactured, Company X sends an invoice to Company Y, which seems displeasing to the buyer because:
Given the situation, Company X can consider making amends by creating a new invoice with reduced pricing and an early delivery date. Nevertheless, rushing the orders to meet the new deadline and that too with reduced prices is very chaotic, inefficient, and unhealthy for a business.
This use case can be easily avoided with a Proforma Invoice.
Proforma Invoice is the primary quotation that contains all the details about the goods/service to be provided, quantity, rate, the total payable amount, and other terms of the agreement. It is designed specially to establish an understanding between the seller and buyer and reach an agreement before the delivery process begins.
The Proforma invoice allows the buyer to know what to expect ahead of time such as---estimated costs, fees, and the date of delivery, instead of creating any last-minute surprises or added rush for anyone.
Going back to the example in the previous section, sending a proforma invoice before initiating the manufacturing process would’ve avoided the subsequent communication with Company Y, without creating any hassle or rush for anyone. By sending a detailed quotation, the buyer can easily take the decision on how to go about the whole transaction and propose any changes if required, before-hand.
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Among many other reasons, here are a few reasons why you would need to propose a proforma invoice to your buyers:
As liquid and flexible as the format of a proforma invoice can be, certain fields should be added to the invoice to ensure a streamlined and hassle-free process.
Here is an example of proforma invoice generated in TallyPrime.
In TallyPrime a proforma invoice is created as a printout of an optional sales voucher. Once the voucher is marked as ‘Optional’, it will no longer impact your accounts books. To generate a Proforma Invoice,
A Proforma Invoice is not a legally binding document. It is similar to a quotation document and if the deal stands canceled and the sales don’t go through, there is no need to cancel the proforma invoice. i.e., the buyer can still choose to cancel the order despite agreeing to the proposed proforma invoice.
No, a payment cannot be made on a proforma invoice. If an advance payment is required to ensure secure capital before the manufacturing process begins, a proforma invoice can be used to propose the terms and details of the upcoming transactions.
Yes. For international trading businesses must provide a detailed description of the goods, as most customs agencies require the item value and other details such as item weight, packaging, shipping costs and so on. Attaching a proforma invoice with the shipment, can streamline your international imports and trades.
A Proforma invoice is issues by the supplier to the seller before the actual sales happen. It is generally issues to make the buyer aware of the future sale and invite any negotiation if necessary.
A proforma invoice is a non-taxable document used to declare the estimated amount and delivery date before the actual sale of goods or services happen. A commercial invoice is a legal-binding document that is sent to the buyer after the sale of goods or services has been made and requesting the payment for the same.
No. A proforma invoice is a courtesy document extended for the sake of clarity between the buyer and seller before the actual sale happens. Thus, there are no VAT or GST added in the document as it is not a legal-binding contract.
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