Pro forma and commercial invoices differ in purpose and timing. Pro forma is a preliminary document for committed buyers, while commercial is a final payment request.
Pro forma invoices help companies forecast budgets while commercial invoices verify information such as cash flow and goods sold.
Buyers are not obligated to pay pro forma invoices, while commercial invoice requires payment before issuing.
Have you ever been confused about the differences between a proforma invoice and a commercial invoice? If so, you're not alone—many people get them mixed up!
Yes, the information presented on either of these invoices is indeed almost the same. You will also commonly see the two documents pop up within the international shipping and export industry.
But why and how are they different?
We’ve done the hard work for you and collected all the important information you need to know about pro forma invoices and commercial invoices.
First, we’ll compare the key differences between a pro forma invoice and a commercial invoice in the table below.
|Pro Forma Invoice||Commercial Invoice|
|Objective||Outline anticipated costs and terms of sale.||Record transaction details for customs and accounting.|
|Legality||Not legally binding||Legally binding|
What Is a Proforma Invoice?
So, what does a "proforma invoice" mean?
You can think of this invoice type as a non-binding quote. Proforma invoices can be written as "pro-forma", "proforma", or "pro forma" and still refer to the same invoice type.
You can differentiate this type of invoice from other types of invoices in two ways. The first is to look for the phrase “proforma invoice” listed in the header section on the page. The second is to place when it is being issued during the sales process in the purchase of goods or services.
When to Use a Proforma Invoice?
A proforma invoice should only be issued to a customer if they have committed to purchase, but the final details are yet to be confirmed. Unlike a quote, a proforma invoice signifies that there is some form of relationship between the buyer and seller that exists.
It also means that there has been some discussion of the impending transaction to gauge a relative estimate for the goods or services that are to be provided.
In some cases, a proforma invoice can be used as a document for customs officials to gauge the cost of the customs duties required for payment on goods being delivered.
In cases like this, usually, the firm selling the goods will cover the costs before a customer has made payment.
📑Use case: In the U.S., for example, when a proforma is used as a shipment invoice with the buyer committing to a purchase with an agreement, a commercial invoice must be sent within 120 days.
How Are Proforma Invoices Formatted?
Proforma invoices can be confused with official invoices because, technically speaking, the formatting is the same. Sometimes, the total costs of the goods or services indicated on a proforma invoice can be the same as the official invoice being sent.
Interested to learn more? Explore the ins and outs of pro forma invoices and see how they can help your business issue the right document.
If used in global trade, a proforma invoice only needs to show foreign customs officers the basic details of a transaction, such as the goods being or expected to be shipped, estimated costs to the importer, and contact details of those involved.
This is the first and predominant way where commercial and proforma invoices differ.
What Is a Commercial Invoice?
A commercial invoice is the official type of invoice used for transactions between buyers and sellers in international trade agreements.
This invoice is an important form of proof for customs clearance when moving goods internationally. It is official proof of contract and sale between both parties involved in a transaction.
When to use a commercial invoice?
A commercial invoice is a primary shipping document used when a company sends goods internationally. The seller issues a commercial invoice to the buyer or importer of the goods.
It is a mandatory document as part of the import and exporting process for international shipments, whether transported by land, sea, or air freight. A commercial invoice is used as an official document to demand payment from a buyer or importer.
It helps the relevant customs authorities working at the border of a country to work out the relevant export and import duties and taxes owed on the goods being shipped.
What Industries Are Commercial Invoices Used In?
Commercial invoices are predominantly used for international trade and shipping. These invoices can be used in foreign exchange transactions.
What Details Should Be Included on a Commercial Invoice?
A good commercial invoice will showcase a substantial number of details about the specific transaction made between a buyer and seller.
This will include all the details that you will see on your average sales invoice but include a few details only required for commercial invoices, including the freight forwarder or import broker details, contact details of both parties involved in the transaction, payment terms, products details, costs, and relevant taxes or fees, and tax identification numbers.
As a cross-border document, you’ll find a lot of the details will vary based on the laws and regulations of the countries involved in a sale. Immigration requirements for importing and exporting goods vary widely per country.
What Happens if a Commercial Invoice Is Filled Incorrectly or Not Provided at All?
It is mandatory to provide a commercial invoice for international trade. It is also important to always provide accurate details on your commercial invoice.
This includes the product details of the goods being shipped and the accurate and actual real costs of the goods. As customs officials use these invoices to calculate the taxes and duties owed on an item, discrepancies found can result in hefty penalties.
As mentioned, a pro forma invoice can be used in replace of a commercial invoice in some circumstances, but it is still mandatory to provide it within a specified timeframe.
Learn more about a commercial invoice and why it should be used with our simple guide.
How Does a Pro Forma Invoice Differ From a Commercial Invoice?
To better understand how you can implement the two types of invoices, let's dive deeper into each of the differences between a proforma invoice and a commercial invoice.
Commercial Invoice vs. Proforma Invoice Differences
- It is sent before an official invoice requesting payment, even if details are expected to remain the same on the subsequent invoice.
- A buyer still has the right to opt out of a transaction even after a proforma invoice has been issued. This means that issuing a proforma invoice is not a guarantee that a transaction will occur.
- A proforma invoice holds no legal validity in the sale of goods and services.
- A proforma invoice cannot be used for taxation or accounting purposes.
- Proforma invoices are only used as an estimate of what the costs will be for goods or services provided. It may also include some brief details about the goods being sold and any other preliminary agreements between the buyer and seller.
- It is only proof that preliminary proof of the commercial relationship between a buyer and seller. This invoice type does not mean a transaction will be fulfilled, completed, or go ahead.
- It is sent in the final stages of the sales process after an agreement has been confirmed between a buyer and seller.
- A commercial invoice is a formal request of payment to a buyer. The commercial invoice should include terms about when the due date for payment is. This could be anywhere from 30 to 60 days from invoice issuance.
- It is a legally binding document in commercial transactions. It is also mandatory to provide customs officials to legally import and export goods cross-border.
- In international trade, the commercial invoice is used by customs authorities to track goods being imported and exported across the border.
- A commercial invoice is a valid tax document. Businesses should keep a record of all commercial invoices issued and received for their accounting purposes, especially regarding tax time lodgment.
- Is valid proof that a contract and commercial relationship exists between a buyer and seller
With its customizable features and user-friendly interface, Statrys makes it easy for businesses to generate accurate and professional invoices, which can help build trust and credibility with clients.
Besides these two, various types of invoices are used in different scenarios. Explore our invoice guide and learn more about its types and tips.
Understanding the differences between proforma and commercial invoices is crucial for businesses, as using the wrong type of invoice can lead to confusion and misunderstandings with clients.
To avoid such issues, it is important to educate yourself on the characteristics and uses of each type of invoice.
Learn more about how to create your professional invoice. This article will walk you through the steps in creating an invoice that accurately reflects your business and effectively communicates the transaction details to your client.
What is the difference between pro forma and commercial invoice?
What is a pro forma invoice?
When should I use a pro forma invoice?
Can a commercial invoice be used for payment?