What is a Pro Forma Invoice? When and How to Use It

Nobody likes surprises when they receive an invoice. Unclear costs and a lack of detail can lead to customer disputes, which can leave you out of pocket and prevent you getting paid. Sending customers a detailed and accurate quote before starting work can eliminate misunderstandings, and help you get paid faster. 

This is where a pro forma invoice enters the picture. They lay out the full scope of the sale before any resources are committed, giving both buyers and sellers more confidence in the transaction they’re about to make, which is especially important if you have high upfront costs or deal in cross-border trade.

This article covers everything you need to know about pro forma invoices from what they are to when to use them and the benefits they can bring for your business.

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What is a pro forma invoice?

A pro forma invoice outlines the full scope of products or services to be sold, the associated costs, and logistical details like shipping terms, taxes, and customs duties. It acts as a confirmation of an order before the work is completed or goods are shipped. Think of it as a more formal — and detailed — handshake agreement between buyers and sellers.

Keep in mind that pro forma invoices aren’t final invoices or formal contracts. They are not a demand for payment, don’t have the legal status of a commercial invoice and are not recorded in accounting systems.

What is the purpose of a pro forma invoice?

With pro forma invoices in-hand, customers can review and approve details of a sale before any products or services are delivered and they become legally bound to pay a formal invoice. 

More specifically, the purpose of using a pro forma invoice is to:

• Provide a good faith estimate to your potential customers to help them understand the full cost of goods, taxes, shipping and duties. 
• Clarify transaction terms like quantities of products, pricing and delivery schedule before production or shipment begins. 
• Support your customers in getting approval and financing from their internal stakeholders by providing a full accounting of all costs.
• Reduce misunderstandings and disputes by aligning with your customer on the specifics of a sale before either party invests time or resources.

In countries like Canada with strict international trade regulations, pro forma invoices also serve as an important paper trail to protect importers and exporters.

Pro forma invoices in Canada

One of the most common reasons for using a pro forma invoice is when dealing with Canada Customs for cross-border trade. The documents are used in the pre-shipment phase of a commercial transaction to align buyers and sellers on what duties must be paid and who is responsible for paying them. They also help customs officers understand and verify the total value of the goods crossing the border.

Let’s say you’re a company importing specialty food products from a supplier in Europe. The goods must pass through Canada Customs, and will likely incur additional duty fees and checks.

To help you project the final cost and delivery date, your supplier sends you a pro forma invoice detailing the full scope of the order, all-in purchase pricing with duties and taxes, and projected delivery date once the goods clear customs. This lets you secure budget approvals for the purchase, and allows you to plan your inventory levels accordingly.

It’s important to note that while a pro forma invoice is useful for planning cross-border transactions to and from Canada, it’s not a substitute for the official Canada Customs Invoice (CCI). This is a mandatory document for all shipments entering Canada.

Even if you’re not shipping internationally, pro forma invoices can be very helpful when scoping out and securing approval on domestic shipping costs and timelines. With the federal and provincial governments working hard to remove barriers to interprovincial trade, more and more Canadian businesses are likely going to start looking cross-country for more customers.

If that’s you, pro forma invoices can be a big help when negotiating and quoting on shipping fees and delivery timelines to other provinces. Canada is a huge, after all, meaning even ‘local’ orders can involve significant freight, handling, and regional surcharges to get products from point A to point B. 

What does a pro forma invoice look like? 

Just like all invoices can look different, there’s no mandatory format for pro forma invoices. That said, they should look professional, and provide all the relevant details a buyer will need to make a purchasing decision.

Here’s what’s typically included in a pro forma invoice:

• A prominent header that clearly marks the document as ‘Pro Form Invoice’. This helps to avoid any confusion with a final sales invoice. 
• Document and date information, including the pro forma invoice number and date of issue. You can also include a validity period or date when the invoice is no longer valid. This is useful for international trade to where exchange rates and shipment costs can change. 
• Your business information and customer details like full legal names, company names, addresses, contact information, and points of contact. You should also include your GST/HST numbers or an import/export RM number if it’s applicable. 
• Itemized list of goods or services that includes a description of the product, quantity of each item, unit price, and total price for each line item. This level of detail ensures that both parties understand the scope of the transaction and agree on costs and deliverables. 
• Financial summary or a detailed breakdown of the transaction, including applicable taxes and duties, shipping and handling fees, and any discounts being offered. The final line should show the estimated total amount due. Companies earning more than $30,000 over four quarters or in any one quarter in a calendar year must also include the GST/HST amounts on their pro forma invoices, or QST if you are in Quebec and PST in British Columbia.
• Shipping and terms of sale, including information about shipping methods, estimated delivery date, payment terms, and a clear disclaimer stating that the document is not a demand for payment. 

Benefits of pro forma invoices 

Pro forma invoices offer many benefits to both buyers and sellers — particularly in providing transparent product information and cost breakdowns for more complex transactions like bulk parts orders or those crossing through international ports of entry and exit.

For sellers, pro forma invoices provide the following benefits:

• Reduce risk. They provide clear and documented terms of a sale to prevent misunderstandings or scope creep.  
• Simplify sales processes. They formalize the terms of an order upfront, reducing the need for further negotiations with a buyer when you have moved into the production phase. 
• Help internal planning. They help sales teams track potential deals, operations teams plan upcoming workloads, and inventory teams stay on top of stock levels. 
• Accelerate deals. They serve as a formal document that helps buyers secure financing and internal approvals, helping to reduce or remove bottlenecks in the sales process.

For buyers, pro forma invoices can also help to:

• Make budgeting easier. They include a full breakdown of all the costs that will be incurred, including taxes and shipments, allowing buyers to secure funding and internal approvals quickly. 
• Ease concerns. They ensure that buyers aren’t hit with unexpected fees or logistical issues that harm or delay their business. 
• Offer flexibility. They serve as a starting point for further discussions with the seller, giving the buyer a chance to negotiate changes to pricing, quantity, discounts, or delivery timeline.

How do pro forma invoices compare to other invoices?

To help you understand how and when to use pro forma invoices, let’s compare them with some other types of common invoices .

Pro forma invoice vs. quote 

• Quotes are less formal and used to roughly estimate the cost of a product or service early on in the sales process, often when a customer has first made an inquiry. Quotes are most often used in service-based industries like catering or construction.
• Pro forma invoices are shared with customers once they have approved a quote and committed to the sale. It provides an accurate cost and more detailed service breakdown, acting as a formal but non-binding document to align on all the details of the project.  

Pro forma invoice vs. sales invoice

• Sales invoices are issued after the delivery of a product or service and are a legally binding demand for payment. They’re entered into the seller’s and buyer’s financial records.
• Pro forma invoices are issued before goods or services are delivered and are non-binding. They detail the scope of deliverables and costs, but are not a legal request for payment. 

Pro forma invoice vs. commercial invoice 

• Commercial invoices, like the Canada Customers Invoice (CCI), is a mandatory, legally binding document required for customs clearance into Canada. It also serves as an official request for payment. 
• Pro forma invoices are non-binding but are used to help buyers understand the full scope of costs, including Canadian taxes and other customs duties before any shipment happens. 

Here’s a quick view comparison of the different invoice types and how they compare with pro forma invoices:

When to use a pro forma invoice

You can a pro forma invoice in situations where a standard quote is too informal, but a final invoice is too soon. The sweet spot is for sales that are a combination of high costs, involve many products and/or come with logistical elements such as international shipping and customs.

Here are some scenarios when pro forma invoices would come in handy.

• International trade. A specialty coffee roaster uses a pro forma invoice to provide an Australian-based café chain with an estimated cost for a large order of beans. The Australian company uses that pro forma invoice to inform their customs broker before the shipment crosses the border.
• Custom orders. A local bakery in Squamish, British Columbia sends a pro forma invoice to a client for a large, custom wedding cake. It details the total estimated cost of ingredients, labour, and delivery to secure approval before any eggs are broken.
• Pre-payment agreements. A small apparel shop in Halifax, Nova Scotia scored a major order for custom-dyed t-shirts from a domestic client. They need a 50% deposit on those goods before they start production. To get the ball rolling, the company sends a pro forma invoice to the client outlining the total costs, shipping terms, and required deposit amount.
• Non-monetary shipments. A Toronto-based brewer is sending free samples of a new beer to a potential restaurant client in the United States. They need to create a paper trail for customs to demonstrate that the shipment has no commercial value to avoid duty payments. The brewer creates a pro forma invoice to declare the goods’ value of zero before shipment.
• Buyer procurement and financing. A small B2B catering in Montreal, Quebec secured a potential deal with a large corporation for a year’s worth of weekly office lunches. The corporation needs a pro forma invoice to secure budget approval and to get internal sign off on the expense.

How to create a pro forma invoice 

Businesses can create pro forma invoices using any tool that supports invoice creation, including Quickbooks, Word or even Excel. You can also download one of Square free invoice templates and customize it with your logo and branding for a polished touch. The key is to include all of the must-have information we’ve outlined in this article.

Square Invoices lets you create and send professional pro forma invoices using a pre-made or custom template, attach them to a customer profile in your Square Dashboard, and send. When you get the thumbs up, you can convert that pro forma invoice into a final bill of sale, and collect payments all within the same platform. 

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Pro forma invoice FAQs 

Is a pro forma invoice legally binding? 

No, a pro forma invoice is a non-legally binding document used to provide the cost of goods or services before a formal commercial agreement or transaction is finalized.

Can a pro forma invoice be cancelled?

Yes, a pro forma invoice can be cancelled because it is a flexible and non-binding document. In most cases, it can be adjusted or withdrawn before any final sales invoice is issued or work has begun. Depending on the type of project, however, cancelling the pro forma invoice my be subject to the agreed-upon terms like non-refundable deposits, cancellation windows, or penalty fees if the seller has already started production.

When should I send a pro forma invoice?

You should send a pro forma invoice after a quote is accepted but before a legally binding purchase order is placed and goods are shipped or a service is carried out.

Can I make a payment on a pro forma invoice?

No, a pro forma invoice is a preliminary estimate and not an official request for payment. Payment is only due once a final sales or commercial invoice is sent after the goods or services have been delivered.