It was at a routine setting, when I first learned about a proforma invoice. My friend, and colleague from the accounting department, Heidi, has her way with stories. A way of blending practical insights about the most routine undertakings with pop culture.
So when I had to take an account of invoices to be issued for the quarter, she asked me for the copies of proforma invoices. Seeing my blank face, she stared at me in disbelief. I knew the consequence was going to be story time. Well, she did not disappoint. And as with all her stories, this one too, began on a gloomy note.
The cabin is dingy. The remnants of the setting sun, cast by the unhurried fan, cut across the desk, landing on Po, the Panda’s face. Slouched. He is seeking some accord with the numbers in an excel sheet.
The Ping-Po Noodles Enterprise, that he had set out to build in the memory of his father, Ping, the Goose, served a singular mission: Making the experience of noodle slurping, truly great.
In the early days, he shipped free samples with handwritten notes to restaurants and retailers, he admired around the world. Most responded with gastronomical love and pre-orders.
Two years on, the company is seeing a slow demise. Although Po did manage to accomplish what he was after - oh, he did, the noodle has become a part of every household diet.
He is facing a crisis of another sort. Financial targets.. Paying the bills and retaining his employees is becoming a challenge, and he seems resigned to the possibility of shutting the shop.
Dejected. Po heaves himself from the chair, and seeks consolation in a glass of water. Only his loyal friends remain. Commander Vachir, the rhino Chartered Accountant, Master Shifu, the red panda General Manager, and the Furious Five, to take care of logistics, inventory, marketing, finance and sales.
This is not the Po we know.
(Flashback to 2 years ago, when Ping-Po Noodles Enterprise started)
Valley of Peace, China. It’s the last month of the first fiscal quarter, and the Furious Five, including Master Tigress, Master Viper, Master Mantis, Master Crane and Master Monkey are fervently working in the godown, to cater to an unexpected increase in demand.
At the Ping-Po headquarters, everyday brings the merriment that one might experience in the Chinese Lantern Festival.
The Furious Five have been busy receiving orders, processing requests, manufacturing and packaging the noodles, managing catalogs and inventory, sending quotations, sending invoices, receiving payments, shipping the noodles.
With more than 5000 customers worldwide, they are headed well towards hitting a record revenue of $105K, in the first quarter. What with Michelin Restaurants such as Le Pavilion Ledoyen in Paris, The Table in Hamburg, Lung King Heen in Hong Kong having bulk-ordered the noodles.
The Head Chef at Lung King Heen has been heard whispering, “I can’t believe that our customers never get tired of asking for the noodle soup.. The secret of their secret ingredient that is guarded so secretly, is secretly driving me crazy!”
So far, the team has issued 700 invoices this quarter. And of these, 30 invoices were raised to the top retailers and Michelin star restaurants, accounting for 47% of the expected revenue.
However, with only two more weeks left in the quarter, the Furious Five realize that 20 of the 30 invoices have been rejected.
What might have gone wrong?
Well, plenty of things.
The invoice may have been made to a wrong organisation, with a misspelled company name, or a mistaken billing or shipping address. Maybe the purchase order did not match. Or the contact details of the person who authorizes the invoice was missing.
Was it an incorrect issue date or an incorrect billing period? Was it a mistake on the payment details and the total amount? Or a mismatched credit note for a previous invoice?
To add to the chaos, the accountants and the finance folks from the customers’ end are off on their annual holidays in the next week. There were 3 more bank holidays in the coming days, like the vacation wasn’t enough.
And it looks like they missed reading what it takes to design an ideal invoice.
This was their first ever hurdle. One that never seemed to end. Ping-Po Noodles continued to see rejected invoices subsequently, and as a result, they missed their target revenues every quarter.
Po is dwelling on a memory from his earlier interaction with Master Oogway, his mentor, guide and Financial Advisor along with Master Shifu, when setting up his business.
“Master Oogway, I am meant to be a Kung Fu warrior. Why have I failed at this? A lot is at stake. I am not sure I am up for the task. I know I wanted to quit Kung Fu and get back to making noodles. But finding the pliers to get through the accounting fence, seems impossible now.”
“Quit, don’t quit… Noodles, don’t noodles… You are too concerned about what was and what will be. There is a saying: yesterday is history, tomorrow is a mystery, but today is a gift. That is why it is called the present. One often meets his destiny on the road he takes to avoid it”, says Master Oogway..
Po is too confused to understand what Master Oogway meant. He continues with his rant. “And what if my customers don’t pay? What if they commit to buy first and not pay up later? I realize that invoicing is a science, and that is where most mistakes happen. What if I fail my father? What do I do?!”
“Maybe you can, if you are willing to guide it, to nurture it. To believe in it”, and saying so, Master Oogway disappears.
Po looks like he’s suddenly woke up from a deep slumber. He runs clumsily to Master Shifu and Commander Vachir. Only this could be the answer!
“Proforma invoice!”, he shouts at no one in particular. Master Shifu looks up from the piles of paper.
“Huh? What is a proforma invoice?”, Master Shifu asks.
“A simple proforma invoice could have avoided all the revenues that we have been losing all this while!”, he adds.
“And what is the difference between a proforma invoice and a regular invoice?!” Master Shifu is thoroughly confused.
“The proforma invoice is sent before the actual invoice and does not record the accounts payable or the accounts receivable. Which means, this serves as a simple estimate or a quotation that captures what’s being promised and what’s being charged. ”, Commander Vachir explains.
“A logical thing to do for any business like ours, that involves shipments and international trade.”, admits Po.
“What do we need from our side to make sure our proforma invoice is sent out correctly, then?”
“Simply start with using the title of proforma invoice on your invoice. Of course, you need to explicitly state that this isn’t a real invoice. And you wouldn’t want to miss out on the important details such as buyer’s name, shipping address and billing address, purchase order details, due date and billing period etc.”
“Then, estimate the cost and state the terms of sales such as the currency accepted, shipping modes, cost per unit and total cost etc, factoring in all additional costs such as shipping, taxes, insurance, customs and duty charges. After this, you need to issue the actual invoice within a specific time frame after the proforma invoice is accepted by the customer. Otherwise, it’s useless”, Po rambles off.
Why did it take me 2 years to think of this?!” Po stomps out of the room muttering and cursing, at the same time, feeling exhilarated about the Eureka moment.
That got the wheels moving and Ping-Po Noodles Enterprise was back on track. They’ve been sending proforma invoices for all their different payment cycles - including monthly and quarterly, ever since.
I was momentarily transported to the Valley of Peace, when reality hit me, and I saw myself in the accounting department, surrounded with stacks of papers around me.
I am not sure if Heidi intended to get my nerves on a panic mode, or simply make me aware of the idea of proforma invoice.
She does that often. I’ll tell you about the time, she told me about all the different invoicing softwares, as different characters of the Avengers. But I’ll leave that for another day.