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Proforma Invoice vs Commercial Invoice: What’s The Difference?

June 5, 2024

Both proforma invoices and commercial invoices are often used in global trade. Many business owners use the two terms interchangeably even though they don’t mean the same thing. Proforma and commercial invoices have different objectives and elements.

Thus, we’ve created this pro forma invoice vs. commercial invoice guide. We’ll discuss the key differences between these two important documents.

Table of Contents

What Is a Proforma Invoice?

Key Elements of a Proforma Invoice

What Is a Commercial Invoice?

Key Elements of a Commercial Invoice

Proforma vs Commercial Invoice: Key Differences

Key Takeaways

FAQs

What Is a Proforma Invoice?

A proforma invoice represents a draft bill of sale that a seller issues to a potential buyer before sending the products or services. This document contains important information about the purchased products and services. In a proforma invoice, you can find the cost, quantity, quality, terms of delivery, terms of payment, etc.

A buyer may need a proforma invoice if they need proof to set up a letter of credit to pay for the products or secure financing for the purchase. You may also need a proforma invoice if your country has strict currency exchange rate regulations.

Proforma invoices are valid for a certain period. This allows customers to make their decision and proceed with the purchase or withdraw. After this period, the proforma invoice expires, and you will need to create a new one to proceed.

Key Elements of a Proforma Invoice

Although they’re not actual invoices that confirm a sale, proforma invoices need to contain certain elements. First, they need to include information about your company, including the name, address, and phone number. If you want, you can also include other relevant information like your email address or working hours.

Then, the invoice needs to contain details about the buyer. This also includes the company name, address, and phone number. You could also add the recipient’s name if you know it.

A proforma invoice also needs to include detailed information about the shipment. You should note the exact quantity and quality and provide a clear description of the products or services.

Don’t forget to include the shipment method, reference number, and estimated time of delivery. Every proforma invoice also needs to contain details about the port of loading and discharge.

Finally, proforma invoices should also contain info about the payment process. Some invoices can also include bank information or projected quantities if you don’t have the exact number.

Creating a proforma invoice can be much easier if you use online invoicing software like FreshBooks. You can add your company’s logo and include the necessary details to ensure your client has all the information. Best of all, you can send the proforma invoice directly from FreshBooks, thus saving time. FreshBooks also offers a free proforma invoice template that you can use and customize to suit your needs.

What Is a Commercial Invoice?

A commercial invoice, or a final invoice, is a document that you send to the buyer after shipping or delivering products. This is the primary shipping document that customs worldwide use for valuation and commodity control. You use these invoices for international trade.

The information from a commercial invoice is valuable to the following entities:

Freight forwarder
Marine insurance company
Both your bank and the buyer’s bank
The import broker
The U.S. and foreign customs

Without a commercial invoice, international trade wouldn’t be possible. Thus, it is important for business owners to learn how to create commercial invoice, as a these invoice contains precise and detailed information about the shipment. In this case, there’s never a projected quantity or an estimation of the total price or shipping costs.

You send the final invoice after both you and the buyer have agreed on the process. This document contains accurate details and allows your company to get paid. Commercial invoices are key to export and import procedures. They specify the quantity of the product and payment terms.

Key Elements of a Commercial Invoice

Commercial and proforma invoices have similar key elements. That’s probably why many people confuse these two terms.

Just like a proforma invoice, a commercial (final) invoice contains information about the seller and the buyer. It also has details about the method and type of shipment, the reference number, and the date.

In this invoice, you can also find info about the products the seller shipped. But, in this case, the stated quantity and costs of the product isn’t an estimate, but a representation of the actual quantity shipped.

A commercial invoice also contains details about the final cost, delivery date, and product terms. Some commercial invoices state information about the shipping company. They may also incorporate bills of lading, and relevant details about the destination.

Proforma vs Commercial Invoice: Key Differences

A commercial invoice and a proforma invoice have many differences. Here’s an overview of the key differences:

Use

A commercial invoice contains essential information about the products a buyer purchases. It displays details about the exact quantity of the purchased products. Each product has a description and payment details. A commercial invoice needs to go with every international sale. Without it, freight forwarders can’t export goods.

A seller uses a proforma invoice to create a quote based on customer inquiries. The document contains estimations of the price and quantity of products. It also includes expected delivery dates, and payment terms. It’s important to note that a seller can’t demand payment based on a proforma invoice.

Format

A proforma invoice and a commercial invoice have similar elements. However, there’s an obvious difference between the two.

A proforma invoice has “proforma” written on it. Due to this, the buyer and the involved parties can clearly establish the document is only an estimate. On the other hand, a commercial invoice doesn’t need to have “commercial” written on it.

Accounting

A proforma invoice lets the buyer budget for the purchase based on the projected cost. If the buyer gives up on the purchase for any reason, there are no consequences. A commercial invoice states the exact amount of money a buyer needs to pay to the seller for the purchased goods or services. This document also helps companies create precise cash flows.

Unlike the proforma invoice, a commercial invoice requires entries from all party’s accounting books.

Stage in the Sale Process

As mentioned, a proforma invoice is issued before the placement of a purchase order. A commercial invoice is issued after the placement of a purchase order, and this is the document the seller uses to request payment. This is why this document is also called the final invoice.

Key Takeaways

A proforma and a commercial invoice may have a lot in common, but they have several key differences. A seller issues the proforma before the actual sale to give the buyer an estimation of the quantity, final price, and payment and shipping terms. Proforma invoices are always issued before the buyer makes a payment. A commercial invoice is issued after the goods have been shipped or delivered, and this is what the seller uses to request payment.

Creating and sending invoices can be overwhelming, especially for new business owners and those with a lot of customers. Fortunately, online invoicing software like FreshBooks can help you to create an invoice in only a few minutes.

Plus, FreshBooks offers other useful features that let you keep track of every transaction, store documents, monitor payments, and create customer bases.

FAQs on Commercial Invoice vs Proforma Invoice

When should a commercial invoice be issued?

A commercial invoice is issued after the buyer purchases the products or services.

Is a proforma invoice a legal document?

A proforma invoice isn’t a legally-binding document. It’s merely an estimate a potential buyer can use to decide whether to proceed with the purchase.

Can you ship internationally without a commercial invoice?

No. International trade, i.e. global trade, isn’t possible without a commercial invoice.

Is a proforma invoice mandatory?

No, a proforma invoice isn’t mandatory. But, for many business owners, it’s a valuable document that helps them project their cash flow. A proforma invoice can enhance customer experience. It helps them obtain valuable information, and streamlines your invoicing so you get paid on time.