Proforma invoice: the quote your buyer takes to the bank

What it has to carry

Both parties' full legal names and addresses, a description of the goods specific enough to be repeated on the final invoice, the quantities, unit prices, currency and total. Then the terms: the incoterm with its named place and version, the payment terms, the expected shipment date, and the bank details the buyer will pay to.

Give it a number and a date like any invoice, and say on it that it is a proforma. A buyer's bank or an import authority may need to tell it apart from the commercial invoice that follows the shipment.

The lines that become the LC

When the buyer's bank opens a letter of credit, the description, the amount, the incoterm and the shipment date are usually copied from your proforma. A description you wrote loosely becomes one your documents must match exactly, and a shipment date you guessed becomes a deadline the bank counts in days.

So write the proforma as if the bank will read it, because it will. Ask for the draft LC before it is opened, and compare it line by line with what you sent.

Price, validity and deposits

Put a validity date on every proforma. Freight rates, material costs and exchange rates move, and a proforma without one can come back months later as the price you agreed. Choose a period your costs can hold, and print the date, not a number of days.

Where the terms are a deposit by telegraphic transfer before production, the buyer often pays against the proforma. Name the deposit and what it pays for, and invoice the balance on the final commercial invoice, so that both payments are tied to the same order in both companies' books.

Where Ara helps

Give Ara your price list and the buyer's inquiry, and ask for a proforma with the incoterm, the payment terms and the validity date written out. When the draft LC arrives, give it both and ask for every line that differs. The proforma, the comparison and every version stay on your PC.