âï¸Learn the key differences between a proforma invoice and commercial invoice, and discover which one is right for your needs.
Managing the financials of your business can be a cumbersome task, especially when you add in the complexities of international shipping. A critical piece of paperwork for any shipment is an invoice, however, with so many different types it could leave you feeling a bit overwhelmed.
Two of the most common types of invoices associated with international shipping are proforma invoices and commercial invoices, but do you know the difference between them?
To make sense of it all, weâve created this guide to explain the difference between a proforma and a commercial invoice. While they may appear alike, their purposes are distinct. Lets delve deeper into these two documents to understand their differences better.
Exporters and importers depend on pro forma invoices and commercial invoices to facilitate international trade transactions. But while these documents may look similar they serve distinct purposes at different stages of the export/import process. Understanding when and how to use each one is essential for smooth operations.
This guide examines the key differences between pro forma invoices and commercial invoices, so you can avoid mistakes and ensure you have the right documents at the right time
What is a Pro Forma Invoice?
A pro forma invoice is a preliminary invoice sent by the exporter before goods are actually shipped. It provides an estimate of costs and outlines proposed terms serving as a quote or negotiation tool early in the buying process.
Key details typically included on a pro forma invoice:
- Product descriptions and quantities
- Unit prices
- Total value of goods
- Shipping mode and delivery terms
- Payment timeline and methods
- Exporter/importer contact info
Pro forma invoices allow buyers to:
- Arrange financing or currency exchange
- Obtain import permits if required
- Set up methods of payment
- Confirm that the proposed transaction meets their requirements
They are not a final bill and no payment is expected upon receipt of a pro forma invoice. It simply initiates discussions leading up to a sale.
What is a Commercial Invoice?
A commercial invoice is a bill for payment sent by the exporter after goods have been shipped to the importer. It contains definitive details about the transaction reflecting the actual shipment.
Information commonly provided on a commercial invoice:
- Final quantities and descriptions of goods shipped
- Agreed unit prices and total value
- Terms of sale (INCOTERMS)
- Shipping mode and date
- Payment instructions
- Export/import contact info
- Any special certifications or declarations
The commercial invoice serves several key roles:
- Provides customs agencies with info to calculate duties/taxes
- Confirms details needed for payment collections
- Acts as packing list describing actual cargo
- Supports insurance claims in case of loss/damage
Since it contains definitive payment information, it is essential for getting paid. Customs also relies on it to approve importation.
Key Differences Between the Documents
While pro forma invoices and commercial invoices share some common elements, they vary in key ways:
Timing
- Pro forma = Sent before goods are manufactured/shipped
- Commercial = Sent after goods have been shipped
Intent
- Pro forma = Provides quote to initiate negotiations
- Commercial = Acts as final bill to collect payment
Payment
- Pro forma = No payment expected upon receipt
- Commercial = Payment is due according to terms
Information
- Pro forma = Provides estimate of expected details
- Commercial = Provides definitive details of actual shipment
Usage
- Pro forma = Used for planning/logistics
- Commercial = Used for customs, insurance, and banking
Purposes of Pro Forma Invoices
As highlighted above, pro forma invoices serve some important roles early in the export process:
Initiating Sale Discussions
Pro formas provide potential buyers with a detailed quote to kickstart negotiations. The buyer can compare your quote with other sellers to make decisions.
Allowing Logistics Planning
Since the pro forma outlines proposed shipping modes, quantities, and timelines, the buyer can arrange logistics like securing cargo space.
Enabling Financing/Currency Exchange
The buyer can use estimated costs on the pro forma to obtain financing and exchange currency if needed.
Overcoming Import Restrictions
Some countries require confirmed orders before issuing import permits. A pro forma acts as proof of intent to buy.
Facilitating Payment Methods
Pro formas enable buyers to set up payment methods like letters of credit based on proposed terms.
Purposes of Commercial Invoices
Commercial invoices serve indispensable functions later in the export process:
Providing Customs Valuation Info
Customs agents use commercial invoices to calculate applicable duties, taxes, and fees for imported goods.
Describing the Shipment
The commercial invoice lists exactly what was shipped, serving as a packing list for cargo contents.
Collecting Payment
The definitive commercial invoice states exactly what the buyer owes the seller, when payment is due, and how to pay.
Supporting Insurance Claims
Insurers reference commercial invoices in the event of claims for lost/damaged goods during shipping.
Confirming Ownership Transfer
The commercial invoice verifies that ownership of the goods shifted from seller to buyer upon shipment.
Mistakes to Avoid
Since pro forma and commercial invoices have such distinct purposes, it’s important to avoid misusing them:
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Don’t expect payment for pro forma invoices – they are for cost estimates and negotiations only.
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Don’t rely on pro forma details for customs, insurance, or banking – commercial invoices provide the needed specifics.
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Don’t wait until after shipping to provide an invoice – send a pro forma first to enable planning and logistics.
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Don’t neglect to send a commercial invoice – it’s essential for getting paid and clearing customs.
Proper Use of Invoices in Exports
By understanding the unique roles of pro forma and commercial invoices, you can ensure you use them properly:
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Send pro forma invoices early when initiating sales discussions.
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Leverage pro formas to enable buyers to arrange logistics, financing, and payments.
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Only expect payment upon sending a commercial invoice after shipping goods.
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Provide customs officials and insurers with commercial invoices, not pro formas.
Adhering to these best practices will help your international transactions proceed much more smoothly from negotiations to logistics to payment collections!
Don’t Get Stuck in a Paperwork Jam
Proforma and commercial invoices serve different roles in international trade but are equally crucial in ensuring goods are properly tracked through the supply chain process.
Businesses need to understand which documents are necessary when shipping products abroad in order to ensure that everything goes smoothly with no delays due to incorrect paperwork requirements.
Having these documents in hand before shipment will ensure your goods arrive on time while keeping you in compliance with international trading regulations.
Cargoflipâs suite of solutions can help you manage your documents and keep track of shipment costs from anywhere, anytime. Get in touch with us today to learn how Cargoflip can make international shipping smooth sailing for your business.
What Is a Proforma Invoice?
A proforma invoice is an estimate of what you will be charged for the goods or services you are receiving. It is typically issued before goods or services have been provided, and it can also provide an estimated cost of goods and services that may not yet be available. Proforma invoice template
Pro Forma Invoice vs Commercial Invoice
FAQ
Are commercial invoice and proforma invoice the same?
Do I need a commercial or proforma invoice with FedEx?
When should I use a pro forma invoice?
What is the difference between a commercial invoice and a regular invoice?
What is the difference between a proforma and a commercial invoice?
Proforma invoices are for negotiation, while commercial invoices are an official shipping document, used by customs, banks and other parties to facilitate payments, duties, taxes and compliance. This article explains how to use each form. A typical export process includes the use of both the proforma and commercial invoices.
What is a commercial invoice?
The commercial invoice is not only an instrument for collecting payment, it is also used by customs agencies for identifying appropriate duties, taxes and other import fees, and ensuring compliance with export requirements. It also provides necessary information for moving the goods from the seller to the buyer.
Can a proforma invoice be sent during a project?
A proforma invoice may be sent during a project, but it is less common. You cannot send a commercial invoice until all expenses are calculated, and the job is 100% done. Otherwise, the amount may be incorrect. The information on the proforma and commercial invoice is very similar.
What is the difference between a tax invoice and a proforma invoice?
A tax invoice serves as notice to the buyer that payment is required. The proforma invoice serves as a pre-sale review of the cost, type of products, and other terms of sale for the prospective customer. The potential consumer can so decide whether or not to purchase the products based on the proforma invoice. Does a proforma invoice require GST?
