What is indicated by a pro forma invoice?

A pro forma invoice serves as a preliminary bill of sale that outlines the expected costs and terms for a transaction before the actual sale occurs. It is typically issued before the goods are shipped and is often used for customs purposes or to provide an estimate of expenses to the buyer.

The correct choice indicates that payment is due before goods are dispatched, which is a common practice when using a pro forma invoice. This reflects the seller's intention to secure payment ahead of delivering the goods, ensuring that the buyer is committed to the transaction and reducing the risk of non-payment.

By establishing that payment is expected upfront, the seller can better manage cash flow and mitigate potential financial losses. This is particularly important in international trade, where the risks are often higher, and the use of a pro forma invoice can provide both parties with clarity on their financial obligations.