Proforma Invoice vs Commercial Invoice

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Invoicing is essential for any organization, and sending invoices is integral to every business’s daily operations, whether in retail or wholesale.

When learning the fundamentals of invoicing, you may encounter various forms of invoices, such as commercial and pro forma invoices.

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Proforma and commercial invoices are both frequently used in export procedures. However, businesses frequently get confused by both invoicing terms and use them interchangeably.

Both, however, are distinct from one another and serve different objectives.

In this blog, we will explore the “proforma invoice vs commercial invoice” subject and uncover their differences. But before that, let’s understand what exactly they are and their functions.

Let’s dive in!

Meaning of Both Proforma & Commercial Invoice

Meaning of proforma invoice

A pro forma invoice is a draft bill of sale that a seller provides to the purchasers before shipping or providing the goods or services. It contains information about the cost, quality, quantity, and terms of delivery, among other essential details.

The first step in an international sale is usually a note of inquiry from a prospective customer. The letter shows interest in one or more of your goods, outlines the prospective client’s purchase interest conditions, and requests an informal or formal estimate.

If a buyer has to secure financing for the purchase or set up a letter of credit to pay for the products, they may ask for an estimate in the format of a proforma invoice.

Additionally, certain nations might need proforma invoices if they strictly regulate their currency exchange rates, demand an import authorization, or safeguard their domestic industries by imposing import limitations on specific commodities.

A proforma invoice should be valid or recognized for a certain period. The purchaser should have a reasonable amount of time to reply, after which the proforma invoice expires. It is because you frequently quote both the cost of your goods and the cost of transportation.

Meaning of commercial invoice

A commercial invoice is sent to the purchaser after the products have been delivered or shipped. Additionally, the proforma invoice format and the format for commercial invoices are very similar.

However, it’s crucial to note that the commercial invoice verifies the precise number of goods that have actually been packaged and sent.

The commercial invoice is critical to the export procedure because it specifies not only the amount owed by the purchaser to the seller but also when and how payment should be made.

The commercial invoice functions as the primary shipping invoice document used by customs offices around the world for commodity management and valuation, providing crucial information and instructions to

  • The freight forwarder
  • The marine insurance company
  • Both your bank and the buyer’s bank
  • US and foreign customs
  • The import broker

Due to this, the commercial invoice must contain all the details required to execute the export transaction effectively.

Difference Between Proforma & Commercial Invoice

Point of Difference Commercial Invoice Proforma Invoice
Reason for issue It fulfills the function of a legal document by serving as a record of the export sale transaction and a request for the purchaser’s final payment. It is provided to the purchaser to give them information about the item or service they haven’t yet received from the vendor.
Contents It includes the final agreed-upon specifications and the request for the final payment. It does not demand payment but offers information such as the initial cost, quality, quantity, and payment terms.
Time of issue It is given out following the delivery or rendering of goods or services for which payment is then required. It is issued in advance of the placement of the purchase order.
Objective It provides the purchaser with information about the payment amount due. It aids the purchaser in choosing whether or not to place an order.
Validity Following the issuance of the commercial invoice, the buyer is required to make the payment in accordance with the terms and conditions stipulated in the commercial invoice. The proforma invoice will remain in effect after delivery until the buyer makes a decision regarding whether to proceed with the transaction or not.
Accounting Buyers and sellers are both required to make entries in their respective accounting books. The proforma invoice does not require any accounting entries.
Payment amount It shows the entire transaction amount that must be paid. It gives a rough estimate of the total cost of the transaction.

How to Generate Proforma Invoice?

How to generate proforma invoice

A proforma invoice contains several important elements. Here’s a list you must make a note of

  • The term “proforma invoice”
  • Product description of the items being sold
  • Any applicable discounts
  • Invoice number
  • Issue date of a proforma
  • Buyer’s and seller’s company name and number, address, and VAT ID (if applicable)
  • Date of issue
  • Due date
  • Net and gross prices of the items on your proforma invoice
  • Total amount due
  • Tax rates
  • Shipping information
  • Shipping cost

One method of creating proforma invoices is to take an existing template and adjust it in Word or Excel to create your customized proforma invoice template. 

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You can delete the invoice number and alter the document’s title. The proforma invoice must then be saved, attached to an email, and manually processed into a finalized invoice.

However, a faster and more convenient way to generate a proforma invoice is with invoice generation software such as InvoiceOwl. 

Such software comes with pre-built invoice templates and lets you create and send your proforma invoice to your clients with complete automation in just a few clicks.

Fast and Professional Looking Invoices On-the-go With InvoiceOwl

Work smarter, not harder with InvoiceOwl. Create professional invoices in just a few taps!

How to Generate Commercial Invoice?

How to generate commercial invoice

Just like a proforma invoice, a commercial invoice contains several important elements too. Here’s a list you must make a note of

  • Shipper’s (exporter) company name, address, and contact details
  • Consignee’s company name, contact details, and address
  • Country of origin of goods
  • Country of final destination
  • Terms of payment 
  • Method of payment (optional)
  • Detailed product information (including product description, HS code, quantity, unit type, price, and currency)
  • Name, date, and signature of authorized company representative
  • Port of loading
  • Port of discharge
  • Final destination address
  • Invoice number and date
  • Buyer (3rd party, if not consignee)
  • Method of dispatch (road, rail, air, or sea)
  • Type of shipment (FCL, LCL, breakbulk, etc.)
  • Vessel name
  • Voyage number (optional)
  • Bill of lading number (optional field)
  • Marine cover policy number (optional field)
  • Letter of credit number (optional field)

You can manually generate a commercial invoice using a Word or Excel invoice template, just like you can with a proforma invoice. After making any necessary adjustments, you can save the invoice and email it to your client.

Exporters, at times, use incompatible Microsoft Word or Excel templates to prepare shipping documentation.

These templates could confuse customers and freight forwarders or result in expensive shipment delays, fines, and demurrage fees if important information is missing from them.

To avoid such unfortunate situations, you can also create commercial invoices using invoice generation software. 

As previously stated, software like InvoiceOwl includes pre-built invoice templates and enables you to generate and email commercial invoices to your customers with complete automation and with just a few clicks.

Frequently Asked Questions
  1. What is the main purpose of a proforma invoice?

    The primary goal of proforma invoices is to save the client from any unforeseen fees. Before delivering the items or rendering the service, these invoices are sent to the customer.

    Proforma invoices typically give the buyer a precise selling price. It just needs to include the necessary details to let customs assess the necessary tariffs after taking a broad look at the items it includes.

  2. Does a proforma invoice allow for payment?

    No, the payments are not owed in response to a proforma invoice. However, the payments are processed via a standard invoice.

    Once all the specifics have been made clear and a payment deadline established, a document known as an invoice is sent to the client. It is a legal record that lists the goods and services sold and the payment owed.

  3. Do proforma invoices require signatures?

    The final proforma invoice must be signed by the authorized purchaser and sent back to the exporter after it has been acknowledged.

  4. Is a proforma invoice the same as a tax 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.

  5. Does a proforma invoice require GST?

    No, proforma invoices are not subject to GST. A Proforma invoice does not represent a transaction that has already occurred or that will soon occur.

    As a result, it is not an invoice and does not require payment of GST in accordance with GST rules.

Final Words

We hope this blog helped you understand the meaning of proforma invoices and commercial invoices, their key differences, and how you can generate them. 

The differences between proforma and commercial invoices are minimal, and you can easily create them in Word or Excel. 

But, as mentioned before, the quickest and simplest way to generate and send invoices is to use a professional online invoicing software.

Therefore, choosing the right online invoicing software is essential for creating and managing your proforma and commercial invoices.

It will automate your work processes, prevent human errors, and help you get paid faster!

Author Bio
Jeel Patel
Jeel Patel

Jeel Patel is the founder of InvoiceOwl, a top-rated estimating and invoicing software that simplifies the invoicing and estimating processes for contractor businesses. Jeel holds a degree in Business Administration and Management from the University of Toronto, which has provided him with a strong foundation in business principles and practices. With understanding of the challenges faced by contractors, he conducted extensive research and developed a tool to streamline the invoicing and estimating processes for contractors. Read More