In international business, proforma invoices and commercial invoices are key elements to finishing an order. Some of you may not be very clear about these two invoices. Thus, I write them in detail for you to have a clearer understanding.
What is a proforma invoice?
A Proforma invoice, also called PI for short, is an informal invoice issued by suppliers that indicates product name, specifications, unit price, etc. It is made before signing the contract, which is convenient for importers to estimate import costs.
There is always a valid period for the proforma invoice, nearly from half a month to a month. It gives importers enough time to reply. If importers reply within a valid time and pay the deposit, suppliers will then issue a commercial invoice. However, if just expired and the quotation plus the exchange rate hasn’t changed much, the transaction could still be done in real business.
What is a commercial invoice?
A commercial invoice is a document in which the supplier lists the overall situation of the shipped goods in detail, like quality, quantity, price, and packaging, when the deal is made. And it is also the proof used for payment.
In cross-border business, commercial invoices are the core of other documents. They should be in line with the information in the commercial invoice. If under the L/C payment terms, the relevant information in the commercial invoice must be consistent with the L/C terms.
Differences between proforma invoice and commercial invoice
Different functions
A proforma invoice could serve as a contract before signing the formal one or when carrying out a small amount of deal. It is mainly for
- Goods quotation. Importers could better understand products and landed costs.
- Applying for importing goods and foreign exchange licenses and issuing letters of credit in some countries. Also, it could be useful for customs clearance in some countries.
However, the proforma invoice is not a formal document. It doesn’t have a legal commitment for both the supplier and the importer.
A commercial invoice is a legally enforceable document. It is issued after the importer has paid the deposit when he confirms the information in the proforma invoice. As commercial invoice is the core document of international business, its functions are as follows.
- It is a necessity for clearing goods and by customs to assess duties, taxes, and other import fees.
- It is convenient for importers to check whether the quantity and amount of goods shipped are consistent with that listed in the contract or letter of credit.
- A commercial invoice provides important instructions to the freight forwarders, insurance parties, and both parties’ banks.
- It can replace the bill of exchange when the bill of exchange is not available.
Different contents
Both types of invoices don’t have a specific format. Every issuing entity has its own invoice format, with only some minor differences in content.
Proforma invoice
The proforma invoice is issued by the supplier to the importer. It mainly includes
- Issued date
- Name and address of suppliers and importers
- Product name, quantity, specifications, price, and the total amount
- Shipping terms, like FOB or EXW
- Shipping date and method
- Payment terms
- Supplier’s bank account
The proforma invoice is a trial shipping list for confirming the transaction conditions before the formal deal. It helps the importer estimate the taxes and shipping costs. If everything is OK, the supplier can accept it. Or he can choose to negotiate it again if not satisfied.
Commercial invoice
The commercial invoice includes all key elements in the proforma invoice, and that information is confirmed. Besides, the commercial invoice has
- Invoice number
- Contract or order number
However, the commercial invoice doesn’t contain the bank details, which are usually listed in the sales contract.
Some importers may require other detailed information, such as packaging methods and sizes. Please note that documents used for clearing customs, like declaration form and certificate of origin, should have consistent information with the commercial invoice.
From the above, we can know commercial invoices include all details of the order and cover a wider range to check the detail.
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