Lucky you! A potential new international customer is interested in one or more of your products or services, and they want a quote. How you respond can make or break the deal.
If this was a domestic customer, you would probably reply with a simple quote. But international transactions often demand more precision, which is why you may respond with a proforma invoice—your formal quote in invoice format. A proforma invoice includes the necessary information to make this international transaction a success.
A proforma invoice is a preliminary document that serves as a formal quote for international buyers, containing detailed information before goods are shipped or payment is made. Unlike a commercial invoice (which is used for billing and customs clearance purposes), a proforma invoice is essentially an estimate that looks like an invoice but functions as a negotiating tool.
A buyer may use the proforma invoice to arrange a letter of credit to pay for the goods or to arrange financing for the purchase. Certain countries may require a proforma invoice if they tightly control their currency exchange rate, require an import permit, or protect local industry by placing import quotas on certain types of goods.
As I mentioned above, there may be times when a proforma invoice is required:
And there are times when it’s simply a best practice to provide the invoice:
In addition, your proforma invoice may include:
From the moment you get a sales inquiry from a potential international customer, your company’s export procedures should kick in starting with the preparation of your proforma invoice. There are important steps every company needs to follow to ensure export compliance, which I have outlined in my blog post, 6 Basic Steps for Export Compliance.
It starts with properly classifying your products for export. If you haven’t already found the correct Harmonized System (HS) or Schedule B code for the items you intend to export, you should do it now. Customs authorities in the country of import use the HS code to determine duties and other restrictions on importing goods into their country.
In addition, the United States and some other countries have separate export control classification codes to determine if there are any restrictions for exporting goods to particular countries. In the U.S., they may be Export Control Classification Numbers (ECCN) or U.S. Munitions List (USML) codes. This information should be included on the proforma invoice to ensure proper export regulations are followed.
It’s important that both types of classifications are done right. Intentionally or unintentionally using the wrong HS numbers to avoid paying the correct duty rates or export control codes to avoid restrictions can lead to substantial penalties, loss of export privileges and even jail time.
When buyers send letters of inquiry, they're essentially requesting a proforma invoice.
After you receive an inquiry from a buyer, you first need to make sure you can do business with them. That means screening them against the various denied and restricted party lists.
The proforma invoice becomes your blueprint for the entire export transaction. The information you include here will populate most other export documents you'll need to prepare later.
After you send the proforma invoice, the buyer will either reject or accept your proposal. As part of the acceptance process, they will most likely want to negotiate the terms of the sale. This will result in a verbal or written contract.
Companies may sometimes request that their international customer provide a signed End-Use or End-User Certificate to provide additional due diligence to ensure the export of their goods doesn't violate U.S. export regulations.
Once you have finalized your sale and prepared your goods for export, you need to prepare the proper shipping documents.
Right before the goods ship for export, run one last restricted party screening to make sure nothing has changed on any denied or restricted party list.
Once you’ve created all your export forms, ensured compliance with export regulations, and fulfilled the other steps of your company’s export process, go ahead and ship your goods!
The proforma invoice is far more than just a quote; it's your opportunity to make a powerful first impression, demonstrate export expertise and lay the foundation for successful international transactions. When done right, it becomes a competitive advantage that helps you win business and build lasting relationships with international buyers.
Remember, in international trade, details matter. A well-crafted proforma invoice shows buyers that you understand the complexities of global commerce and can be trusted to deliver on your commitments.
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This article was first published in April 2015 and has been updated to include current information, links and formatting.