A typical export process includes the use of both the proforma and commercial invoices. Shippers who don’t know better may think the two forms are interchangeable—but they’re not.
In this article, we’ll examine the differences between the proforma and the commercial invoice and the role each form plays in an export shipment.
The Proforma Invoice
A proforma invoice is simply a quote prepared by the exporter to resemble a commercial invoice. An international sale often begins with a letter of inquiry from a potential buyer expressing interest in one or more of your products, outlining the terms of their interest and asking for an informal or formal quote.
As discussed in the article How Does the Proforma Invoice Fit in the Export Process?, a buyer may request a quote in the form of a proforma invoice in order to arrange a letter of credit to pay for the goods or if they need to arrange financing for the purchase. In addition, certain countries may require a proforma invoice if they tightly control their currency exchange rate, require an import permit or protect local industry by placing import quotas on certain types of goods.
A proforma invoice should be valid for a specific period. Because you are often quoting not only the cost of your product but also the transportation cost, a reasonable time should be allowed for the buyer to respond, after which the proforma invoice is no longer valid.
The Commercial Invoice
Once the buyer and the seller agree upon the terms of the sale and the buyer has accepted the terms of the proforma invoice—usually by submitting a purchase order that the seller has accepted—the transaction is ready to proceed. When the goods are ready to ship, the seller issues a commercial invoice.
In addition to listing the amount owed by the buyer to the seller, including when and how payment must be made, the commercial invoice plays an important role in the export process. The commercial invoice is the primary shipping document used by customs worldwide for commodity control and valuation, providing important instructions and information to:
- The freight forwarder.
- U.S. and foreign customs.
- The import broker.
- The marine insurance company.
- Both your bank and the buyer’s bank.
Because of that, it’s important that the commercial invoice includes all the necessary information to successfully complete the export shipment. 10 Items That Belong on Your Export Commercial Invoice provides a checklist of those items.
You can download a free commercial invoice here. (Note that certain localities, such as Canada and countries in the Caribbean, may require specific invoices instead of, or in addition to, the standard commercial invoice form.)
Proforma vs. Commercial Invoice: 3 Key Differences
In summary, despite the fact that a proforma and commercial invoice may look very similar, there are three key differences between the two documents:
1. When They Are Issued
After a company receives an inquiry about one or more of their products from a potential international customer, they issue a proforma invoice as a quote not only outlining the cost of the goods but also the terms of the sale. The potential buyer can accept the price and terms outlined in the proforma invoice or make a counteroffer in an attempt to negotiate.
2. What They Include
While the kind of information that appears on both types of invoices may be similar, the commercial invoice should represent the final, agreed upon details of the transaction including any necessary additional export or import control information.
In the absence of a formally negotiated and agreed upon sales contract, the proforma and commercial invoices are part of the paper trail that encompass the contract between the buyer and the seller. Check out the free webinar, Creating an International Sales Contract, for more details about the “battle of the forms.”
3. How They Are Used
As outlined above, the proforma invoice is used by the buyer and the seller to negotiate the price and the terms of the sale. It may also be used by the buyer to obtain any necessary import permits, overcome any potential import restrictions and arrange for a letter of credit or some other payment process.
The commercial invoice is not only an instrument for collecting payment, it is also used by customs agencies for identifying appropriate duties, taxes and other import fees, and ensuring compliance with export requirements. It also provides necessary information for moving the goods from the seller to the buyer.
The Bottom Line: Commercial vs. Proforma Invoices
If you create the proforma correctly, the difference between a proforma and commercial invoice may be minimal. Both are important to your exporting process, and both are among the dozens of export documents that you can create quickly and easily using Shipping Solutions export documentation and compliance software. Watch the free 8-1/2 minute video that shows you how.
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