In international trade, invoices play a key role in the transaction process. Pro forma and commercial invoices are the most commonly used among these documents. Although they have some similarities, there are significant differences in purpose, content and legal implications. This article comprehensively analyses the definitions, purposes, contents and main differences between the two types of invoices. It will help you better understand their application in international trade.
What is a Pro Forma Invoice?
A pro forma invoice is an informal document a supplier provides that’s great for import and export transactions. It’s not a commercial invoice, but it’s still an important tool. Pro forma invoices are especially helpful for buyers because they provide a reference price, which can help them estimate costs. This makes customs clearance and applying for import licenses much easier!
Why use a pro forma invoice?
Pro forma invoices are mainly used in the following situations:
- Provide an estimate for customs declaration: When the goods have not yet been officially traded, the pro forma invoice provides the customs department with an estimated price to help calculate taxes and tariffs.
- Apply for an import license: In some countries, importers may need a pro forma invoice to apply for an import license.
- Price reference: As a price reference document before the official contract, it helps the buyer and seller determine the approximate transaction price.
When is a pro forma invoice used?
Pro forma invoices are generally used in the following situations:
- Pre-transaction stage: This stage is used to provide quotations and help formulate contract terms before the official commercial invoice is issued.
- International trade: when goods are transported from one country to another, pro forma invoices are used to provide price estimates, apply for licenses, and make customs declarations.
What does a pro forma invoice contain?
A pro forma invoice usually includes the following information:
- Seller and buyer details (name, address, contact information).
- Description of goods (name, quantity, specifications).
- Unit price and total price.
- Terms of the transaction (e.g. Incoterms).
- Payment method.
- Date of shipment and shipping method.
- Notes or special terms.
What is a commercial invoice?
A commercial invoice is an official document issued by a seller to a buyer. It details the transaction terms, including the quantity, unit price, total price of goods or services, and payment terms. A commercial invoice is legally binding and is a crucial basis for customs clearance, payment, and financial records. It plays a pivotal role in international trade.
Why is a commercial invoice needed?
A commercial invoice is used for:
- Payment proof: The buyer makes a payment based on the commercial invoice.
- Customs clearance: Customs needs the commercial invoice to confirm the value and content of the goods when clearing customs to calculate taxes and tariffs.
- As proof of transaction: In international trade, the commercial invoice is the official document proving the transaction and serves as a legal basis.
When is a commercial invoice used?
A commercial invoice is generally used in the following situations:
- Before or when goods are delivered: A commercial invoice is issued when a transaction is officially completed and the goods are delivered.
- For settlement and payment: It is used in the financial settlement and payment process between the buyer and the seller.
What does a commercial invoice contain?
A commercial invoice generally contains the following information:
- Seller’s information: the seller’s company name, address, tax number, etc.
- Buyer’s information: the buyer’s company name, address, tax number, etc.
- Goods description: a detailed description of the goods, including the name of the goods, quantity, unit price, total price, model, etc.
- Payment terms: payment method, letter of credit, payment deadline, etc.
- Shipping terms: shipping method (e.g. FOB, CIF, etc.), destination, shipping costs, etc.
- Invoice number: a unique invoice number.
- Date: the date on which the invoice was issued.
- Signature: the signature of the seller or authorized person.
Proforma invoice and commercial invoice: what is the difference?
The main differences between pro forma invoices and commercial invoices are as follows:
| discrepancy | proforma invoice | commercial invoice |
|---|---|---|
| legal effect | Has no legal effect and is only used to quote a price or confirm the details of a transaction | Legally binding for customs clearance, payments and financial records. |
| When to use | Before a transaction is concluded. | After the transaction is complete, the goods are ready to be shipped. |
| content | Similar to a commercial invoice, but may lack some formal details. | Includes complete transaction details such as customs codes. |
| purpose | Quotations, order confirmations, license requests, requests for advance payments. | Customs clearance, payments, financial records, insurance claims. |
Related FAQ
Can a pro forma invoice be used for customs clearance?
A pro forma invoice cannot be used for customs clearance itself. It is only a document that provides valuation and transaction information for goods. A commercial invoice or official trade document is required for customs clearance.
What is the difference between an export invoice and a commercial invoice?
An export invoice is specifically used for exporting goods and usually contains export-related information. A commercial invoice is widely used in commercial transactions and applies to all types of sales.
What is the difference between a commercial invoice and a general invoice?
A commercial invoice is used in international trade or commercial transactions and contains detailed information about the goods, payment terms, etc. A regular invoice is used for everyday consumer or domestic transactions.
How long is a pro forma invoice valid for?
A pro forma invoice does not have a fixed validity period but is usually used sometime before the goods are delivered.
What is the difference between a pro forma invoice and a commercial invoice?
A pro forma invoice is a document used to estimate the transaction. In contrast, a commercial invoice is a formal transaction document usually used for customs clearance and payment.
