Using Proforma Invoice Will Help To Increase Your Profit
Read in 7 min. It is common occurrence that most exporters provide their buyers very limited information when asked for quotation. This lack of detail and accurate information by exports is probably a major factor why products with good quality and competitive price do not get sold.
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It is common occurrence that most exporters provide their buyers very limited information when asked for quotation. This lack of detail and accurate information by exports is probably a major factor why products with good quality and competitive price do not get sold.
Whether you are the exporter or the importer it is crucial that you understand how successful exporters quote buyers using proforma invoice. You should be able to clearly distinguish the differences between quotation, proforma invoice and commercial invoice. The following brief descriptions are intended to help you understand their differences and to provide you with all the items that you should include in a proforma invoice plus the areas that you need to consider when completing commercial invoice.
Quotation- is a worksheet for calculating export costs to sell goods or services at stated price and under specific conditions. The offer is generally presented to the buyer in a formal way using Proforma Invoice. A quotation may include all the contents that appear in a typical proforma invoice except 1) country of origin of product, 2) the title Proforma Invoice is usually not included in a quotation.
Proforma Invoice- is a price quotation prepared in an invoice form. It is different from commercial invoice, in that proforma is used to create a sale and is sent in advance to commercial invoice. The content of a proforma invoice is almost identical to a commercial invoice. Proforma invoice is usually considered binding agreement although prices might change in advance to the final sale.
In some countries, the U.S. for example, Customs may accept proforma invoice (generated by the US importer and not the exporter) if the required commercial invoice is not available at the time when filing entry documents (entry- is a process of filing documents with U.S. Customs at the port of entry to get goods released from Customs). U.S. Customs may use proforma invoice to assess duty and examine goods. The importer on record however, is required to post a bond and produce commercial invoice within 120 days from the date of entry. If the required commercial invoice is needed for statistical purposes the importer has to produce the commercial invoice within 50 days from the date Customs releases the goods to the importer.
Here are some reasons why proforma invoice is widely used in international transactions:
a) Considered a binding agreement.
b) May be required by some countries as part of their import licensing procedures.
c) Bankers and financial institution use proforma to open letter of credit for importers.
d) Easily recognized because of similarity to commercial invoice that traders are familiar.
e) Follow an invoice format; this encourages the exporter to include all information that appears in the commercial invoice.
Keep the following points in mind when your company is asked to produce a proforma invoice:
* The title of the document should clearly say - Proforma Invoice?
* Exporters name, address, telephone number and e-mail address.
* Sold to name, address, telephone number and e-mail address.
* Proforma invoice distinct reference number.
* Date issued. The date of the proforma invoice is the date of the quotation.
* Customer Purchase Order number, if available
* Terms of payment (Letter of Credit, Documentary Collection, Pre-payment, TT, Open Account etc.)
* Estimated date of shipment.
* If more than one product, number each product beginning with number 1.
* Quantity shipped.
* Full product description, include the Harmonized Schedule (HS) code when available
* Indicate clearly currency used (USD, euro, yen etc.)
* Unit pricing should be included.
* Unit pricing should be extended by the quantities quoted to form line item total.
* Any additional seller-provided services should be itemized and should be added to reach a grand total.
* Terms of sale using INCOTERMS 2000 (FOB, CIF, CFR, DDU etc.)
* Identify the number of unit measure, weight, case, pallets, box, etc.
* The country of origin of the product.
* Validity period, never make open-ended commitments remember that the validity date can be changed.
* Must be signed and title be included.
Remember that proforma invoices are formal offers to sell. When the buyers agree with all the terms and conditions of the proforma invoice the result is purchase order sent by the buyer, which finally leads to sales contract that is if the buyer and the exporter agree to have a formal sales contract. The proforma and purchase order must be compared before goods are shipped to check for discrepancies. Should there be discrepancy buyer should be promptly notified to correct any errors.
Commercial Invoice- is prepared after the sale takes place and is the final bill from the exporter to the buyer that conforms in all respects to the agreement. It could have the exact terms of the proforma invoice first offered, or it could differ in those terms that were the result of final negotiations. Commercial invoices are also used by governments to determine the true value of goods for assessing Customs duties, examine goods and gather statistics. Additionally, many countries use commercial invoice to control imports. It is important for the exporter to check with the buyer the type of information that must be included in the commercial invoice in order to clear Customs in the buyer’s country. Here are few key areas to consider when producing commercial invoice.
* Should be prepared in the manner customary to trade.
* Most countries require that Commercial Invoice must be filed for each shipment.
* Must be original, some countries accept photo copy with a declaration by foreign seller, shipper or importer verifying that it is a true copy.
* When invoice is not available some countries accept proforma invoice with information adequate to assess duty, examine goods and collect statistics.
* Some countries may require special Customs Invoice ? US for example, waived Customs Invoice in March 1, 1982.
Common Invoicing Mistakes by Exporters
The following are few of the many invoicing mistakes that are often made by exporters. Any of the following mistakes may cause delay, crippling penalty or total seizure of products by Customs officials.
* Under invoicing, declaring less than the actual value of goods.
* Invoice description vague.
* Several distinct articles lumped as one.
* Seller does not show the discounted invoice at the net price.
* Omit royalty, commission, packaging and other added to make market value (if they are dutiable).
* Transportation and insurance charges not itemized separately (some countries do not assess duty on transportation and insurance charges).
* Pertinent information missing, lines left blank.
* Country of origin missing.
* Invoice not signed by seller or seller’s agent.
Remember, at a minimum invoice must always clearly show, total invoice value, non dutiable charges, add to make market value (all dutiable charges), and net entered value of the merchandise imported.
By carefully preparing proforma invoice, the exporter can increase the chances of the offer to sell to be accepted by the buyer and eventually increase the exporter’s sales and profit. Because proforma invoice is the first document the buyer receives from the exporter, there is a psychological advantage in laying everything out, since the easiest thing for the buyer to do is to accept the proposed offer to sell as given. Help your buyer to accept your offer by providing a thoroughly prepared proforma invoice.
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