What Is a Proforma Invoice? Guide for Indian Exporters

Are you getting bogged down by the countless documents involved in your export business? Confused between documents that look nearly identical, with ever-changing formats? Unsure of what to do next?  You’re not alone.

For Indian exporters, some clarity on documentation can go a long way in simplifying international trade. In this article, we’ll discuss the most common document type: the proforma invoice. It is an export order confirmation before proceeding with the actual trade.

In this article, we’ll cover what a proforma invoice’s meaning is, its benefits and key features, challenges, best practices, and future trends, to give you an end-to-end overview of the invoice type. 

• A proforma invoice is a document shared before the actual trade of goods or services. Although not a legal necessity, providing a proforma invoice is considered good practice in the exporting domain.

• A proforma invoice has several benefits. It fosters trust, credibility, transparency, and mutual agreement between the seller and the buyer. Creating a proforma invoice is a common practice for both international and domestic exporters.

• Communicating all details clearly, without errors, ensures smooth business relations. For international trade, an accurate proforma invoice coupled with payment providers like Xflow can slash down time and resource usage.

A proforma invoice is a preliminary invoice, or a bill of sale, issued before goods are shipped, or services are delivered. Proforma invoices neither demand payment nor are legally binding, but instead represent a commitment for the transaction. It is different from the commercial invoice, which is provided after the transaction has been completed.

The proforma invoice includes detailed information about the items outlined in the transaction. Depending on the goods/services being delivered, the industry, and buyer requirements, the proforma invoice format can include the following information:

• Header and label
• A unique invoice reference or number
• Date of preparation or issue
• Seller and buyer details
• Detailed description of goods or services and their pricing
• Validity period 
• Proposed terms of sale and payment
• Shipping information
• Any certifications required by customs authorities
• Signature or authorization

For example, say a freelancer is providing graphic design services to an international client. But the client wants to know the cost breakdown before committing fully. The freelancer can use the proforma invoice to provide a detailed breakdown of the service charges, hours, software licensing costs, taxes, and more.

While providing a proforma invoice is not a legal necessity for Indian exporters, it has become a widely accepted practice in international trade.

The proforma invoice is issued and delivered by the seller before the transaction goes through. It starts with an initial discussion, followed by the proforma invoice request, invoice creation, and follow-up discussions.

Here’s a breakdown of the steps:

Discussion

After the initial buyer inquiry, the seller and buyer discuss the trade itself. This typically involves outlining details regarding prices, delivery, and payment terms.

Proforma invoice request

The buyer then requests a proforma invoice from the seller to get a complete picture of the transaction and its minutiae.

Proforma invoice creation

The supplier creates the proforma invoice document, typically using ERP software, furnishing complete details about the transaction. Once created, the document is then forwarded to the buyer.

Follow-up discussions

The buyer reviews the proforma invoice. They can either accept the terms or negotiate further. Each negotiation requires an updated proforma invoice. However, the invoice cannot be updated without the buyer’s consent.

When both the buyer and seller agree on the terms, the proforma invoice acts as the starting point for the trading activities that follow.

A proforma invoice represents commitment, increases transparency, provides negotiation powers to both parties, streamlines the trade process, supports Indian exporter compliance, and creates mutual understanding.

Commitment

When the seller issues a proforma invoice, it shows commitment towards fulfilling the transaction. It builds trust between the two parties and is a common expectation in international trade. 

Transparency

The proforma invoice builds transparency for the transaction by outlining and describing all the particulars in a single document that is accessible to both parties. This is a critical step before finalizing the transaction.

Negotiation

The proforma invoice gives both parties negotiation power. The seller can outline the costs and delivery timelines, and the buyer can budget accordingly or negotiate for a better deal.

Process streamlining

The proforma invoice streamlines trading in multiple ways. It simplifies supply chain coordination with logistics partners, allows the seller to plan inventory, saves time for both parties, and keeps expectations transparent and upfront. This efficiency really helps in international trade, which tends to get complicated.

Compliance

Whether trading domestically or internationally, export compliance cannot be missed. The proforma invoice is a ticket to compliance documentation, such as foreign currency allocations, import permits, shipping documents, customs forms, and more.

Mutual understanding

The proforma invoice is critical for building mutual understanding of the transaction for the seller and buyer. No details are missed, future disagreements can be mitigated, and both parties are able to operate on equal grounds.

These benefits explain why the proforma invoice is considered a good practice in trading.

Although commonly used by exporters, the proforma invoice can also be used by freelancers, manufacturing businesses, e-commerce companies, and service providers. Here’s how:

Exporters

Both domestic and international exporters can use the proforma invoice to communicate the details of the transaction. 

Freelancers

Freelancers can benefit from providing a proforma invoice as well. In industries like consultancy or graphic design, for example, the document can provide structure to an otherwise unregulated transaction procedure.

Manufacturing

Manufacturers can benefit from the structured reporting that proforma invoices facilitate, especially for bulk production and export. Outlining details like product specifications and customization terms upfront can prevent costly errors in the future.

E-commerce

E-commerce platforms and businesses can use the proforma invoice for large order quantities and customization requests. 

Service providers

Service-providing agencies can use the proforma invoice to communicate the scope of services, fees, timelines, and more.

The proforma invoice is created and shared before the trade. It contains details on expected pricing and timelines. The commercial invoice is the final bill shared after the trade has been completed.

In the following table, we’ll make a quick comparison between a proforma and a traditional commercial invoice.

The proforma invoice is issued before the trade occurs. It is frequently confused with the quotation, which is a supplier’s offer for potential trade, and the purchase order, which is the buyer’s official confirmation. 

Here, we will cover these three documents that identify landmark stages in the trade process.

An effective proforma invoice can set the stage for smooth trade. Some of its key features include HSN/SAC codes, currency, tax, payment terms, and estimated delivery.

HSN/SAC codes

HSN (Harmonized System of Nomenclature) codes are used for naming and uniquely classifying trade goods. The SAC (Service Accounting Code) similarly applies to various services, their identification, and classification. As per the GST regulations in India, the proforma invoice should include information on both.

Currency

Another invoicing requirement in international export is currency specification. The document should specify the currency for payment terms and related calculations on the total amount, broken down, if needed.

Tax

For both international and national exports, remember to include applicable taxes, such as the VAT or GST, on a proforma invoice, which helps the buyer estimate costs on their end.

Payment terms

Depending on initial discussions between both parties, the document should lay out the payment terms transparently.

Estimated delivery

Lastly, the document should mention timelines and expected delivery dates, broken down by deliverables, if applicable. This can make logistical planning easier for both parties.

When creating proforma invoices, you might face challenges like incorrect formats, missing information, and miscommunications. These can lead to delays and confusion later.

Incorrect format

The proforma invoice, its format, and the details it carries have to be consistent. Otherwise, it can create confusion and make document processing a lengthier process. Hence, remember to use a consistent proforma invoice format for all your exports.

Missing regulatory information

Missing or miscommunicated regulatory information can lead to penalties. So, remember to include all required details in the proforma invoice.

Exchange rate risks

The time period between issuing the proforma invoice and receiving the payment can be long. Fluctuating exchange rates can affect the final amount.

In addition to these, manually creating proforma invoices can come with its own set of challenges. Time and resource consumption, human errors, inefficiency, and compliance risks, being a few. To work around these, it’s best to follow a few general practices.

Some best practices to create an effective proforma invoice include using standard templates, digitally signing invoices, and accounting for currency conversion when writing the document.

Here’s a closer look at each of these:

Use standard templates

Using standard, professional templates for all your proforma invoices is a key step. It shows professionalism and makes document processing easier in the long run.

Digitally sign invoices

Use digital signatures for credibility and to ensure the validity of the invoice.

Account for currency conversion

If your business conducts cross-border exports, account for currency conversions within the invoice. Mention exchange rates, and specify how currency conversion will be dealt with. Use a cross-border payment provider like Xflow to minimize risks.

Integrating the proforma invoice with your existing ERP systems and accounting tools offers two benefits: It simplifies the record-keeping process and makes it easier to track all transactions.

Payment platforms like Xflow make it easier to integrate your proforma invoice with invoicing and payment platforms. Xflowpay’s invoice tools and features offer simplified currency conversions and handle international payments for you. 

If you provide a proforma invoice to your buyers, make sure to follow legal and regulatory compliances like GST guidelines, RBI requirements, and export documentation standards.

GST guidelines

The GST guidelines do not directly mention proforma invoices. However, as best practice, all proforma invoices must contain HSN and SAC codes, which help identify and classify the goods and services being provided. The invoice should also provide information on the GST registration number, along with different taxation information.

RBI requirements

The RBI also does not have any specific guidelines surrounding the proforma invoice. However, exporters frequently include an RBI purpose code within the document, which is important for foreign currency transactions in international trade.

Export documentation standards

Since the proforma is the predecessor to many export documentations in India, and can help in obtaining export financing and insurance, it’s important to prepare it carefully, while communicating all the necessary information.

Bonus tip: When creating the proforma invoice, it is best to add legal disclaimers stating that it is not the final invoice, and add authorized signatures and company seals to validate the document.

Proforma invoicing is experiencing a shift in 2025. However, as invoicing requirements continue to evolve, the future looks promising with e-invoicing, blockchain verification, and automated GST filings.

E-invoicing

Generating e-invoices through software is the most prominent change. These platforms can generate proforma invoices and more, on a single interface that connects with all your accounting and ERP systems. Moving away from manual invoice generation can help you avoid common human errors.

Blockchain verification

The latest blockchain technology has added a layer of security to invoicing. Blockchain works by authenticating and securing your data. Invoicing software frequently makes use of blockchain tech in its operations.

Automated GST filing

Automation also helps with compliance. Software and tools can automatically file GST, ensuring compliance and efficiency for all invoice types covered under the GST regime.

For Indian exporters frequently engaged in cross-border trade, having a reliable payment platform is critical. Xflow provides all necessary global payment services, including invoicing, in a single, user-friendly platform.

What makes it the perfect international payment platform? The lowest FX rates, speedy settlement times, and no hidden fees. Xflow connects with accounting platforms through its extensive API integrations. It also offers regulatory support, with its ISO 27001 and SOC 2 certifications ensuring data security.