What does pro forma mean?
Pro form is a Latin phrase. It translate to “as a matter or sake of form”, which is a method used to calculate financial outcomes using assumptions and estimations. A pro forma document refers to a document that has been created to stand in for the actual document that may be ready at a later time. For example, a pro forma invoice may be available 5 weeks before and actual shipment, while the actual invoice may only be available 2 days before an actual shipment.
What is the purpose of a pro forma document?
When referring to international shipping documentation, a pro forma document can be issued prior to actual tax invoice issuance in order to save time. For example, a pro forma invoice can be used for:
- The purpose of letter of credit creation
- A pre-notice sent to consignees
- Pre import license application
- Pre import registration or lodging intent to import
In some countries, Customs authorities will accept pro forma documents for import clearance.
Examples of pro forma documents:
- Pro forma income statement
- Pro forma invoice
- Pro forma financial statements
When preparing pro forma documents or projections, it is usually recommended to make conservative assumptions and to keep details as close to known realities as possible. If pro forma documents or projections are consistently too far off from actuals, the pro form creation process loses it value and purpose.