Pro-Forma+Invoice

A “Pro forma” invoice can expedite payment to a vendor before the product being invoiced is actually received by the customer/buyer. The process itself requires the trust and collaborative efforts of both parties. This diagram illustrates responsibilities of buyer and vendor in the pro forma process [|PIC INVOICING PRO-FORMA.docx] // Pro Form invoicing //// can be any method of providing adequate product invoice data to the buyer for the vendor to receive full or partial payment prior to a customer’s acceptance (and sometimes receipt) of the product. Pro-Forma invoicing is an advance billing mechanism for payment to the Buyer before product delivery. // In legal terms, the Pro-forma (or “as a formality”) invoice can serve as a confirmed Purchase Order (PO) where buyer and supplier agree on the product detail and cost. It can obviate the need for a separate PO. A sales quote is prepared in the form of a pro forma invoice (which is different from a commercial invoice prepared to accompany shipment and request payment with receipt and acceptance by the customer). It is used to create a sale and is sent in advance of the commercial invoice. The content of a pro forma invoice is essentially the same as a commercial invoice and is usually considered a binding agreement although the price may change in advance of a final sale. Payments are then usually made by schedule or by percentage delivery completion. Self billing (see below) may be used in pro-forma invoicing when the pro-forma invoice is prepared by the customer. **// Benefits //**
 * Pro Forma Invoicing **
 * // Definition //**

The pro forma invoice can expedite cash flow by providing the vendor (manufacturer or distributor) with monies or credit to locate the product, prepare it for shipping, make delivery and, in some cases, installation – without placing their own capital at risk. In circumstances whereby the buyer themselves prepare the billing (self-billing) or have a need to show proof of payment to their donor organization such as USAID, an international donor/lender such as the IBRD or a private credit institution such as a commercial bank, the pro forma invoice with matched purchase order will serve as the proof of payment. The buyer may be able to receive financing for providing an immediate payment to the vendor – in advance of the product actually being shipped. And it can replace the need for a separate PO. **// Some problems //** Customer reluctance to process payment before delivery is a principle barrier to pro forma invoicing. Difficulties obtaining reliable and compatible __ electronic e-purchase systems __ for tracking purchases and payments are another. In some countries such as China, [|laws may not recognise the pro forma invoice] as having the same legal status as a formal order. But vendors require significant capital to maintain pre-purchase product stock and payment for purchased products generally lags up to two months behind delivery. Items that remain in inventory over 21 days may suffer damage, deterioration, storage charges or even obsolescence. Stock items may not be exactly what a customer will require when an order is actually placed. If a product that is ordered is not in vendor stock, the vendor must use its own capital to acquire the ordered item from manufacturer or distributor. This requires the use of funds belonging to the manufacturer or distributor (if the vendor has credit with them) or the vendor themselves. When a buyer does actually place an order for a product that is otherwise payable upon customer receipt, the payment may be delayed several weeks after delivery to reach the vendor. Added to the time that was required for the vendor to locate, ship and make final delivery of that product, the payment process might reasonably be expected to stretch out more than sixty days. And that two month period is for a commercially available off the shelf (but out of stock) item. According to the International Supply Management (ISM) Institute, the average duration that a vendor is faced with when extending credit to a customer in cross border trade almost always exceeds the sixty day time frame if an advance payment is not available. The cost of capital for the vendor can become significant, especially in areas with limited access to confirming banks able to provide financing.

**// Applications //** The pro forma invoice attests to the accuracy of product information that can provide a buyer with data sufficient to process an advance (prior to product delivery) payment to the vendor and formal acceptance. The process allows for an invoice to be submitted at any time prior to customer delivery. Submission of the Invoice to the paying buyer may occur: Upon vendor receipt of the product Order from a buyer
 * Upon vendor acquisition of the product from a distributor
 * Upon vendor receipt of the product for shipment to the buyer
 * Upon vendor shipment to the buyer
 * Upon product delivery to buyer’s country customs control
 * Upon delivery of the product) to the buyer (after clearing customs but prior to user acceptance)

**// Contents of a Pro Forma Invoice //** In order to provide this benefit, the __ pro forma invoice __ must include sufficient product data to show credible evidence of bona fide (good faith) performance effort by the vendor and a high level of due diligence on the part of the vendor in securing and safeguarding product delivery to the customer. It may be simple as a means of processing payment or essentially the same as a commercial invoice if it is to accompany shipment and withstand tax audit.


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