In international shipping, both proforma and commercial invoices are widely used. Many shippers mistakenly believe these forms are identical, but each serves a distinct purpose with unique components. Today, we will explore the difference between commercial and proforma invoices, guiding you on when and how to use each effectively.
What is a proforma invoice?
A proforma invoice is a preliminary draft bill provided by a supplier to a potential buyer before the delivery of products or services. Unlike a commercial invoice, it isn’t legally binding.
This document outlines the details and estimated costs of the proposed transaction, giving the buyer an overview of the expected expenses for the goods or services. The prime purpose of a proforma invoice is to help the buyer understand the total amount they might need to pay.
A proforma invoice typically should be valid for a specific period, as it often includes product and shipping costs that may fluctuate with the market. If the buyer cannot respond within a reasonable timeframe, the proforma invoice will expire and may need to be reissued with updated information.
What is a commercial invoice?
Once the buyer and seller have agreed on the sale terms and the buyer has accepted the proforma invoice, the transaction is ready to move forward. Then, the seller/provider files a commercial invoice when the goods are prepared for shipping.
The commercial invoice does more than detail the amount owed by the buyer and the payment terms; it is also a crucial document in the export process. It is generally used for customs clearance, commodity control, and customs valuation.
It provides essential instructions and information to:
- The freight forwarder
- Customs authorities
- The customs broker
- The marine insurance provider
- Your bank and the buyer’s bank
Proforma vs. commercial invoice: 3 key differences
1. When to use them
A proforma invoice is generally issued when the buyer and seller are in the early stages of a transaction, such as during planning or freight negotiation. It provides the buyer with a valuation, allowing them to determine if the purchase is within their budget and needs any necessary adjustments.
Additionally, if a buyer wants to compare prices from multiple carriers, proforma invoices serve as quotes to help make an informed decision.
In contrast, the buyer receives a commercial invoice once the transaction is finalized. This document acts as both a contract and proof of sale, detailing the terms of the agreement, including the specification of the goods, shipping terms, etc.
If your business involves cross-border shipping, whether by land, sea, or air, you’re legally required to issue a commercial invoice to the buyer.
2. What they include
While these two invoices may share similar information, the commercial invoice should reflect the final, agreed-upon details of the transaction, containing any required export or import control data.
As an essential document for customs declarations, the commercial invoice must list full product descriptions, total value, HS code, and freight forwarder involved.
Moreover, a proforma invoice will be labeled “proforma,” indicating to the buyer and other parties that it is only an estimate. Conversely, a commercial invoice does not require such labeling.
3. How they are used
As previously mentioned, the proforma invoice helps the buyer and seller negotiate pricing and aids buyers in cash flow planning. It can also assist the buyer in obtaining import permits, navigating import restrictions, and setting up payment methods like a letter of credit.
On the other hand, the commercial invoice is a formal sales record, often required by customs when shipping goods internationally. Customs officials rely on the commercial invoice to determine applicable tariffs or taxes on imported items and to facilitate the shipment from the seller to the buyer.
Streamline the shipping invoice process
Grasping the differences between commercial and proforma invoices is necessary for successful international shipping. Partnering with ASLG simplifies your invoicing process, ensuring your global transactions run smoothly and efficiently.
We help guarantee that your shipping documents, including commercial invoices, comply with all international shipping laws and regulations. And minimize the risk of customs delays or errors.
Additionally, we provide one-stop logistics solutions, whether you require dangerous goods or cold chain shipping services.
FAQs:
Is a proforma invoice a legal document?
A proforma invoice is not legally binding. It is an estimate that potential buyers can use to decide whether to proceed with the cooperation.
Is it possible to ship internationally without a commercial invoice?
No, you cannot engage in global trade without a commercial invoice.
Is a proforma invoice mandatory?
No, a proforma invoice is not required. However, a proforma invoice can improve the customer experience by providing needed details and helping streamline the invoicing process, ensuring timely payments.
