It is confusing for most people to deal with a supplier’s proforma invoice. Is it a legal document? Should you send the P.O. before or after the P.I.? What is the best practice in handling a P.I.? I will answer all these questions in the video. Enjoy.
Welcome to the GoodLife Warrior podcast. I’m Yuping. We make sourcing easy, fun, and profitable for your business. This episode was originally aired as a video on my YouTube channel, youtube.com/goodlifewarrior. As always, high-quality, professional sourcing content delivered to you with passion and my unique Chinese accent. Enjoy.
Hello, Goodlife Warrior friends. I hope you are doing well, feeling well, living every day with a positive intention to enjoy more and love more. Today, we’re going to talk about the purchase order and proforma invoice, two essential documents that define a legal transaction. If you are an eCommerce seller, you may know the basics about PO and PI.
However, sometimes the basics may not be enough. So in this episode, we’re going to cover everything you must know about PO and PI. Let’s get started.
All right my darling friends. In this video, we’re going to answer three basic questions.
By the end of the video, you should know all the answers, especially if you are in an eCommerce business. Right?
The first question is, what is a proforma invoice?
What comes to your mind? A proforma invoice is the preliminary bill of sale. Why is preliminary? Because the terms and conditions of this PI can be changed by the buyer. So this leads to the question, who made the PI? The seller, in your case, could be your supplier.
If you don’t like the price shown on the PI, you can negotiate. If you don’t like the delivery date that’s shown on the PI you can renegotiate. As long as you don’t confirm this PI, this PI is not binding to the buyer but is binding to the seller.
This leads to the second question. At what point a PI, proforma invoice, becomes binding for the buyer, you, if you’re buying products from the suppliers?
Well, there are two scenarios.
The first one is, the supplier offers you their PI first and offers a bill of sale, preliminary bill of sale. If you confirm their offer with your purchase order, then this PI and PO work together to lock this transaction. At that point, both documents become legal and binding. Now the second scenario, I would say it represents probably 80% of the business reality. If you’re a buyer, you probably know what I’m talking about. Most of the time we send our purchase orders to the supplier first, and then the suppliers send their PI to confirm the PO.
In this case, is this PI a binding document? Well, we can debate on this because PI is a preliminary bill of sale, but for the sake of reality, yes, because our PO now becomes an offer to the supplier. I want to buy this product at this price and the PI becomes an acceptance. So both documents work together now locked this transaction. Now, there is an interesting question.
What if the terms and conditions on the PI don’t match your purchase order terms and conditions? Who has the upper hand? For example, if your purchase order specified the delivery date to be March 1st, but the supplier’s PI said that the delivery date is April 15th because they have a production delay. Can you hold your supplier for the on-time delivery against March 1st, as you specified? The answer is no.
If you didn’t say anything against their PI then April 15th is deemed to be the accepted terms and conditions. In the contract world, you must remember whoever had the last say without the other party challenge that, that will be deemed to be accepted terms and conditions by both parties. So, if you dispute with the supplier for on-time delivery, the supplier’s April 15 date will win because that’s the last day.
This leads to the third question. What is the buyer’s best practice when it comes down to evaluating PI information? The best practice lies in how we examine the information on the PI. The reality is, the PI could be very simple.
There are five essential elements. What product I’m selling to you, at what price, what quantity, and what is the shipping term, and what’s the payment term?
On your purchase order though, it could be a comprehensive list. Your product specification and all the terms and conditions related to this transaction. It could include the warranty and the late delivery penalty, all these terms, and conditions that you want your supplier to agree and fulfill. Now, how do you close the gap? I already said it early. Whoever had the last say prevails. If the supplier is not confirming the late delivery penalty or the warranty issues, how do you reconcile this gap? Let me give you a tip.
When you examine your PI, the supplier’s PI, you must have the supplier call out your purchase order. By having the supplier calling out your PO, basically, you’re having them agree and confirm the terms and conditions on the PO. You want the supplier’s P.I to be the lasts ay, but their last say is confirming what you told them to do on your PO. That’s one of the good tips, right? In the Sourcing Warrior Mastermind course, I have a specific tutorial on this PI examination. Because it’s such an important piece of document. It could lock you in this legal and binding transaction.
Did you learn something? What is PI? A preliminary bill of sale. Is PI binding? There are two scenarios. What is your best practice? Making sure you prepare a thorough purchase order with great terms and conditions that are favorable to you and having the supplier call out your purchase order in their PI. Did you enjoy this video? If you set your intention to enjoy more and love more, give me a thumbs up. I really appreciate your time. If you’re interested in Sourcing Warrior’s Mastermind course, the link is below. I look forward to working with you, helping you through this remarkable year. Have a great day ahead. I’ll see you in the next video.
Check out the link, the Sourcing Warrior Mastermind link, undertake Sourcing Warrior’s quiz to find out your sourcing IQ. Make it fun, learn something, have a great day. I’ll see you in the next episode.