The allure of a well-turned Proforma

The allure of a well-turned Proforma

We did say that we get a bit excited about export documents, didn’t we? And rather than keep quiet about it, we thought we might just start a little series, so we could share…

The Proforma Invoice, at the start of your document chain for a shipment, covers a lot of ground. It’s an offer to a client; it’s a contract of sale; it lays the groundwork for everything about the shipment.

The Proforma is the first official document for a shipment you’ll send to a customer – it starts the transaction ball rolling. While you might have had phone or fax or email contact, and even received a Purchase Order, until you’ve issued a Proforma and received written acceptance, you don’t really have a contract of sale. Even if your contract of sale is to be covered by a Letter of Credit, you need a Proforma – it is the basis of the agreement between you and your customer.

The Proforma is the place where you lay down your pricing, lead times, shipment method, payment terms – all the things that will govern what and how you’re selling, and how it will be transported. It also carries information that will reappear on further documents, such as your Commercial Invoice and Packing List, tying all the documents together for the shipment.

Before you begin

You will have an idea of what your customer wants – which goods, how much and how fast. You will likely also have discussed pricing and lead times. You also need shipping information. Where does the customer want the goods delivered? Which shipping method and incoterm will you use?

Consult your forwarder or shipping company, and get freight options for shipping the proposed quantities of goods. This might include flight or voyage information, but might only give costs and timings, depending on how much lead time is needed.

You’ll also need to quote your own lead times, which should include whatever time you require to get batch testing done and any other preparations you have to make for an export shipment – this could include Certificates of Origin and Phytosanitary Certificates.

What does your customer need?

Your customer needs detailed information – a well-constructed Proforma should contain lots of detail. Pricing, payment terms and timings are important, but there should also be information that will help them be sure of Customs clearance when the shipment arrives.

Getting ready for Customs

Depending on what you’re shipping, you might need to clear Customs outbound as well as at destination, so make sure you do your research before you issue the Proforma, so you can be sure of covering your costs and quoting accurate timing.

Do you need to include a Phytosanitary Certificate? A Certificate of Origin? A Certificate of EMC compliance? Test results?  Some of these things will take time to obtain and add to your costs. And in some cases you will need these certifications or other compliance measures in order to clear customs outbound; sometimes the compliance measures will be different for outbound and destination customs. Get all these ducks in a row before you issue the Proforma.

Payment terms

For many new exporters, the most terrifying question is: Will I get paid? Sending out a full container of your product on a promise from a stranger can feel very risky indeed.

If you haven’t already, talk to your financial advisor about international payment instruments and their relative merits, and to your forwarder about Incoterms and where the responsibilities lie. You’ll feel better for having more knowledge, and if you can give your customer some choices, they’ll appreciate the service!

Proforma as negotiating instrument

Just as you can ask for amendments to a Letter of Credit before you accept its terms, your customer can come back to you and ask for changes to the terms of a Proforma before they accept it. This means that you need to make sure the initial Proforma leaves you some wiggle room, and that you’re clear with your customer about what cannot be changed – for instance, you might allow some wiggle room on pricing, but not on lead times or transit times. This will help you to allow a little back-and-forth before you and the customer finally settle.

Don’t forget to keep copies of any interim Proformas, with notes so you know what has been changed each time and why!

Putting the document together

Here’s a sample Proforma (with some labels to help out). There’s only one piece of information missing, which you won’t be able to get until after the shipment has departed – the Bill of Lading number. So, all the information your customer needs to make a decision should be here.

Sample Proforma Invoice with labels

Sample Proforma Invoice

Just the beginning

Once you have a written acceptance of the Proforma from your customer, you have a contract of sale. So, make sure your contact at the customer company is authorized to sign on their behalf; do your homework!

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