Proforma Invoice

A proforma invoice is not a valid invoice in terms of accounting. Because of this reason proforma invoices can not be recorded as an accounts receivable by the exporters nor can they be recorded as an accounts payable by the importers. Proforma invoices are widely used in todays international trade transactions in substitution of sales contracts. It is easy to create a one page proforma invoice instead of writing a multiple page in detail sales contract.  

A proforma invoice to be used in an international trade transaction should cover below points : 

  1. Name of the Exporter, address and contact details.
  2. Name of the Importer, address and contact details.
  3. Title of the document, proforma invoice number, proforma invoice date : "Proforma Invoice Date : 26.June.2012", "Proforma Invoice No : PI26062012"
  4. Definition of goods : "Crushing and Screening Machine" etc...
  5. Delivery term : "CIF NEW YORK PORT, Incoterms 2010", "FOB STOCKHOLM PORT, Incoterms 2000" etc...
  6. Quantity, Unit Price, Currency, Total Price : "10Mtons of "Titanium Dioxide Rutile" from 3.000USD per Mton, Total Amount is 30.000,00USD CIF HAMBURG PORT, Incoterms 2010."
  7. Payment Terms : "Irrevocable Letter of Credit payable at 90 Days from Bill of Lading Date", "Cash Aginst Documents at Sight" etc...
  8. Delivery Period : "4 weeks after confirmation", "5 weeks after issuance of the letter of credit"
  9. Bank account details of the exporter and all other additional conditions regarding the sales.

Proforma Invoices in Letters of Credit Transactions :

  1. After seller (exporter) and buyer (importer) agreed upon certain conditions of the transaction, buyer demands a proforma invoice from the exporter.
  2. Exporter prepares the proforma invoice on their company letterhead and completes it with a signature. 
  3. Exporter sends the proforma invoice by e-mail and/or air courrier to the importer. Most of the times an e-mail copy of the proforma invoice would be sufficient for the importers.
  4. Importer applies to its bank with the proforma invoice to open a letter of credit in favor of the exporter.
  5. Banks will be using the details on the proforma invoice along with the information they gather from the importers via "Letter of Credit (L/C) Application Forms" (Import Documentary Credit Application Forms). 
  6. As a common practice banks refer to proforma invoice date and number on the description of goods part of letters of credit texts.

Special Hints on Proforma Invoices for Letters of Credit Transactions :

  1. You can not present a document titled "Proforma Invoice" instead of "Invoice" or "Commercial Invoice". It is forbidden by current international standard banking practice, ISBP 2007. "A credit requiring an “invoice” without further definition will be satisfied by any type of invoice presented (commercial invoice, customs invoice, tax invoice, final invoice, consular invoice, etc.). However, invoices identified as “provisional”, “pro-forma” or the like are not acceptable. When a credit requires presentation of a commercial invoice, a document titled “invoice” will be acceptable.
  2. UCP 600 article 4-b : Credits v. Contracts states that "An issuing bank should discourage any attempt by the applicant to include, as an integral part of the credit, copies of the underlying contract, proforma invoice and the like." This is because of the fact that the contract between exporter and importer is not connected with the letter of credit that will be issued in favor of the applicant. Which means that the applicant will be paid by the issuing bank as long as applicant comply with the terms and conditions of the credit.

Proforma Invoice Sample for Letters of Credit Transactions

You can reach a sample proforma invoice in Microsoft Excel (xls) document from this link  
letterofcredit.biz is your gateway to International Trade Finance World designed & developed by a Certified Documentary Credit Specialist.
What is proforma invoice? How can we use a proforma invoice ina letter of credit transaction? 
In international trade transactions, a proforma invoice means a trade document that states a commitment from the seller (exporter) to sell goods to the buyer (importer) at specified conditions. 

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